The Political Economy of Bitcoin
30 Pages Posted: 29 Nov 2014 Last revised: 22 May 2018
Date Written: July 28, 2015
The recent proliferation of bitcoin has been a boon for users but might pose problems for governments. Indeed, some governments have already taken steps to ban or discourage the use of bitcoin. In a model with endogenous matching and random consumption preferences, we find multiple monetary equilibria including one in which bitcoin coexists with regular currency. We then identify the conditions under which government transactions policy might deter the use of bitcoin. We show that such a policy becomes more difficult if some users strictly prefer bitcoin because they can avoid other users holding currency in the matching process.
Keywords: Money matching, Random matching, Endogenous matching, Cryptocurrency, Bitcoin
JEL Classification: C78, E41, E42, E50
Suggested Citation: Suggested Citation