Entrepreneurship and Bitcoin: Breaking the Network Effect

23 Pages Posted: 23 Jun 2016 Last revised: 2 Nov 2018

See all articles by Malavika Nair

Malavika Nair

Troy University

Nicolas Cachanosky

The University of Texas at El Paso; American Institute for Economic Research; UCEMA Friedman-Hayek Center for the Study of a Free Society

Date Written: March 1, 2016

Abstract

This paper explores the question of whether the market process is capable of bringing about a spontaneous monetary switch to a new currency in the presence of strong network effects of the incumbent currency. It does so by examining current happenings around Bitcoin. It finds that two mechanisms stand out: the coordinative efforts of the profit-maximizing entrepreneur as well as the ability to use the old and the new currency simultaneously. It finds that marginal decisions made by rational agents seeking to maximize net private benefit in their choice of currency, be it entrepreneurs or buyers and sellers of currency, are capable of setting in motion a switch to a new currency, even in the absence of contingencies such as extreme inflation or political instability. Whether or not these mechanisms play out fully in the case of Bitcoin still remains to be seen.

Keywords: Bitcoin, Network Effects, Entrepreneurship

Suggested Citation

Nair, Malavika and Cachanosky, Nicolas, Entrepreneurship and Bitcoin: Breaking the Network Effect (March 1, 2016). 2017. Review of Austrian Economics, Vol. 30. Issue. 3., Available at SSRN: https://ssrn.com/abstract=2799479

Malavika Nair (Contact Author)

Troy University ( email )

Troy, AL
United States

Nicolas Cachanosky

The University of Texas at El Paso

500 West University Avenue
El Paso, TX 79968
United States

HOME PAGE: http://https://www.utep.edu/

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

UCEMA Friedman-Hayek Center for the Study of a Free Society ( email )

Buenos Aires
Argentina

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