Beyond Bitcoin: The Economics of Digital Currencies

192 Pages·2016·0.988 MB·English

by  Hanna Halaburda, Miklos Sarvary (auth.)

BEYOND
BITCOIN
THE ECONOMICS OF
DIGITAL CURRENCIES
Hanna Halaburda
and Miklos Sarvary
Beyond Bitcoin

Beyond Bitcoin
The Economics of
Digital Currencies
Hanna Halaburda and Miklos Sarvary
BEYOND BITCOIN
Copyright © Hanna Halaburda and Miklos Sarvary 2016
Softcover reprint of the hardcover 1st edition 2016 978-1-137-50641-2
All rights reserved. No reproduction, copy or transmission of this
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Any person who does any unauthorized act in relation to this publication
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First published 2016 by
PALGRAVE MACMILLAN
The authors have asserted their rights to be identified as the authors of this
work in accordance with the Copyright, Designs and Patents Act 1988.
Palgrave Macmillan in the UK is an imprint of Macmillan Publishers
Limited, registered in England, company number 785998, of Houndmills,
Basingstoke, Hampshire, RG21 6XS.
Palgrave Macmillan in the US is a division of Nature America, Inc., One New
York Plaza, Suite 4500, New York, NY 10004-1562.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
ISBN: 978-1-349-55435-5
E-PDF ISBN: 978-1-137-50642-9
DOI: 10.1057/9781137506429
Distribution in the UK, Europe and the rest of the world is by Palgrave
Macmillan®, a division of Macmillan Publishers Limited, registered in
England, company number 785998, of Houndmills, Basingstoke, Hampshire
RG21 6XS.
Library of Congress Cataloging-in-Publication Data
Halaburda, Hanna.
Beyond bitcoin : the economics of digital currencies / Hanna Halaburda
and Miklos Sarvary.
pages cm
Includes bibliographical references and index.
1. Electronic fundstransfers. 2. Bitcoin. 3. Foreign exchange.
I. Sarvary, M. (Miklos) II. Title.
HG1710.H275 2015
332.40285'4678—dc23
2015021525
A catalogue record for the book is available from the British Library.
Orzeszkowi
—HH
To Eva, Peter, and Tamas
—MS

Contents
List of Tables ix
1 Introduction 1
2 Medium of Exchange: Ever-Present Competition 11
2.1. The Medium of Exchange—Historical Overview 12
2.2. What Roles Does Money Serve? 21
2.3. Competing Money 32
2.3.1. Coexistence Is Costly 33
2.3.2. Network Effects 37
2.3.3. The Difficulty of Introducing New Currency:
Excess Inertia 42
2.3.4. Coexistence of Various Currencies 45
2.4. Virtual Money? 47
3 Platform-Based Currencies 49
3.1. Special Currencies of the Off-Line World 54
3.2. Platform-Based Currencies in the Digital Era 59
3.2.1. Online Video Games and World of
Warcraft Gold 64
3.2.2. Virtual Worlds and Linden Dollars 72
3.2.3. Social Networks and Facebook Credits 79
3.2.4. Promotion Platforms and Amazon Coins 86
3.3. The Future of Platform-Based Currencies 92
4 Cryptocurrencies 97
4.1. The Double-Spending Problem 100
4.2. How Does Bitcoin Work? Brief Overview 103
4.3. Not the First One—Predecessors of Bitcoin 111
4.4. New Challenges 114
4.5. Competition against Other Cryptocurrencies 121
viii Contents
4.6. More than Just a Currency 143
4.7. Trading Cryptocurrencies 146
4.8. How Do Cryptocurrencies’ Attributes Compare
with Earlier Money? 156
4.9. Competition against State-Issued Currencies 159
5 The Road Ahead 165
Notes 169
References 179
Index 183
List of Tables
2.1 A brief overview of the major innovations in
the history of money 22
2.2 Attributes supporting the critical roles of money 28
3.1 Design attributes of platform-based currencies 60
4.1 Summary of attributes of selected cryptocurrencies 123