The Microeconomics of Cryptocurrencies

Hanna Halaburda
By Hanna Halaburda, Guillaume Haeringer, Neil Gandal, Joshua Gans
The proposal for the digital currency Bitcoin was released in 2008 (Nakamoto 2008). Since then, its viability has been continuously questioned, with many predicting its demise. So far, such predictions are moot. At its peak in the end of 2017, one bitcoin was worth just below $20,000, then it dropped to $3400 a year later, and bounced back to $9,000 in spring 2020. This is despite the fact that Bitcoin is not backed by any real asset nor any governmental claims (such as the ability to use it to settle tax debts). As a consequence, Bitcoin’s resilience has increasingly become a topic of interest among economists. 

While macroeconomists look to it as a potential study of monetary theory, microeconomists have been interested in Bitcoin due to the seemingly robust nature of an otherwise highly decentralized network without any clear owner. 

Bitcoin was initially proposed in a white paper by Nakamoto (2008) and came into existence on 3 January 2009. Nakamoto’s contribution was providing the answer to a long-standing question in the cryptography community (and to a lesser extent among libertarians) which is the question of whether it is possible to design a fully decentralized digital currency.

Read the full Vox EU article.

Hanna Halaburda is Associate Professor of Technology, Operations and Statistics.