Is Bitcoin a Decentralized Payment Mechanism?

31 Pages Posted: 9 Jan 2020 Last revised: 28 Feb 2020

See all articles by William J. Luther

William J. Luther

Florida Atlantic University; American Institute for Economic Research

Sean Stein Smith

Lehman College

Date Written: January 3, 2020

Abstract

We make a distinction between centralized, decentralized, and distributed payment mechanisms. A centralized payment mechanism processes a transaction using a trusted third party. A decentralized payment mechanism processes a transaction between the parties to the transaction. A distributed payment mechanism relies on the network of users to process a transaction on a shared ledger. We maintain that bitcoin is neither a centralized nor decentralized payment mechanism. It is, instead, a distributed payment mechanism. We then consider decentralized and centralized aspects of the broader bitcoin payment space.

Keywords: bitcoin, centralized, consensus decentralized, distributed, exchange, governance, payments, e-wallet

JEL Classification: E40, E41, E42

Suggested Citation

Luther, William J. and Stein Smith, Sean, Is Bitcoin a Decentralized Payment Mechanism? (January 3, 2020). AIER Sound Money Project Working Paper No. 2020-03, Available at SSRN: https://ssrn.com/abstract=3513305 or http://dx.doi.org/10.2139/ssrn.3513305

William J. Luther (Contact Author)

Florida Atlantic University ( email )

777 Glades Road
Boca Raton, FL 33431
United States

HOME PAGE: http://www.wluther.com

American Institute for Economic Research ( email )

PO Box 1000
Great Barrington, MA 01230
United States

HOME PAGE: http://www.aier.org/staff/william-j-luther

Sean Stein Smith

Lehman College ( email )

250 Bedford Park Blvd
New York, NY New York 10468
United States

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