Bitcoin's Fatal Flaw: The Limited Adoption Problem

NYU Stern School of Business

42 Pages Posted: 20 Mar 2019 Last revised: 21 Aug 2019

See all articles by Franz J. Hinzen

Franz J. Hinzen

New York University (NYU) - Department of Finance

Kose John

New York University (NYU) - Department of Finance

Fahad Saleh

McGill University - Desautels Faculty of Management

Date Written: August 14, 2019

Abstract

Bitcoin remains sparsely adopted even a decade after its birth. We demonstrate theoretically that this limited adoption arises as an inescapable equilibrium outcome rather than as a transient feature. We establish such a result for a wide class of blockchains that employ Proof-of-Work. Our results arise due to three features: (1) an artificial supply constraint, (2) free entry to the validator network, and (3) a need for consensus. Network delay precludes relaxing the supply constraint as a solution. Nonetheless, we demonstrate that permissioned blockchains may obtain widespread adoption, thereby highlighting the need for research on alternatives to Bitcoin.

Keywords: Bitcoin, Libra, Blockchain, Proof-of-Work, Limited Adoption, FinTech

JEL Classification: E42, G00, G29

Suggested Citation

Hinzen, Franz J. and John, Kose and Saleh, Fahad, Bitcoin's Fatal Flaw: The Limited Adoption Problem (August 14, 2019). NYU Stern School of Business. Available at SSRN: https://ssrn.com/abstract=3334262

Franz J. Hinzen

New York University (NYU) - Department of Finance ( email )

44 West 4th Street
New York, NY 10012
United States

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Fahad Saleh (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
180
Abstract Views
1,429
rank
167,909
PlumX Metrics