The Predictable Cost of Bitcoin

44 Pages Posted: 5 Dec 2017  

Robert Parham

University of Virginia - McIntire School of Commerce

Date Written: November 18, 2017

Abstract

Bitcoin, the first and most prominent crypto-currency, has seen explosive growth since its inception in 2009. A feature of the Bitcoin mechanism design is that, under mild assumptions, it is fully deterministic in behavior given a date (in the past or future), and the price of one Bitcoin (in terms of, say, US dollars) at that date. Aspects of Bitcoin that can be determined include the number of outstanding Bitcoins, Bitcoin market cap, inflation rate, aggregate miner revenue, aggregate spending on computing chips and electricity, and aggregate computing power dedicated to mining Bitcoins. I present a formal model for Bitcoin analysis, define the equilibrium in the mining market, and show that if the current Bitcoin price trend continues, the aggregate Bitcoin demand for computer chips (semiconductors) and electricity will exceed the aggregate US demand by 2022 and 2023, respectively.

Keywords: Bitcoin, Proof-of-work, Cryptocurrency, Mechanism Design

Suggested Citation

Parham, Robert, The Predictable Cost of Bitcoin (November 18, 2017). Available at SSRN: https://ssrn.com/abstract=3080586 or http://dx.doi.org/10.2139/ssrn.3080586

Robert Parham (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

HOME PAGE: http://kn.owled.ge

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