eCash in a Social Theory of Money: Bitcoin and Other Cryptocurrencies

28 Pages Posted: 6 Sep 2014

Date Written: August 4, 2014


The success of the Bitcoin project challenges the academic eCash discourse of the last 30 years. In this paper, it is explained why some of Bitcoin’s fundamentals indeed contain the elements to design sustainable money promoting self-equilibrium and thus also challenge the conventional notion of “moneyness.” This is coherent with a social theory of money as outlined in (The 2014). In fact, Bitcoin’s success is, amongst others, due to the fact of implicitly assuming an equivalence between collective information and aggregate money stock by linking money supply directly to fundamental value via a data-based productivity measure called proof-of-work. The data-based productivity notion is further explored in subsequent cryptocurrency concepts like Permacoin. However, not all proof-of-difficulty concepts make economic sense, and it is likely that concepts which dispense with scaling energy consumption are void of economic meaning in the “real world.” Finally, a new quantity theory of money is presented explaining how a data- based productivity notion of an eCash scheme is linked with network topology, relevant information creation, and fundamental value of goods and services produced within the network/social group, that is, real GDP. The causality implies purely endogenous “money supply” and is not dependent on a central point of trust like central banks in today’s monetary system. From a theoretical perspective, it is also argued that Bitcoin’s “block chain,” the public ledger based on hashing computational puzzles is, in principle, an early technical implementation of a Walrasian auctioneer in a confined market as described by the general equilibrium framework in economics. Nevertheless, the challenge remains to move from a data-based productivity measure to an information-based productivity measure, which might proof to be difficult as the “veil of money” appears to be astonishingly firm.

Keywords: Social Theory of Money, New Quantity Theory of Money, Bitcoin, eCash, Cryptocurrency, Networks, Fiat Money, Productivity, Growth, General Equilibrium Theory, Endogenous Money, Veil of Money

JEL Classification: B10, B20, B59, D24, D50, D80, H40, L14, L17, Z19

Suggested Citation

The, Frederik, eCash in a Social Theory of Money: Bitcoin and Other Cryptocurrencies (August 4, 2014). Available at SSRN: or

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