Questions tagged [economics]

About Bitcoin as it might be discussed in economics class, e.g. supply, demand and price in theory.

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65
votes
9answers
83k views

Where do bitcoins come from and what gives them their value?

Where do bitcoins come from? From the WeUseCoins.com video it appears they are just being produced by "miners" and sold to people. So who backs Bitcoin or gives it its value?
63
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11answers
10k views

Will Bitcoin suffer from a mining Tragedy of the Commons when mining fees drop to zero?

One issue that I haven't seen clearly addressed is the possible Tragedy of the Commons in Bitcoin's future (see this answer). 40 years into the future, the only significant direct benefit for honest ...
54
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4answers
31k views

What keeps the average block time at 10 minutes?

I've been told "the network" sets the difficulty level such that there will be one new block mined every ten minutes. I imagine the rich would instead prefer to keep difficulty as high as possible to ...
91
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15answers
21k views

Does hoarding really hurt Bitcoin?

Some people believe that hoarding hurts the Bitcoin economy. But are they really right? As long as corresponding goods vendors and services will be here to stay and reinforce people's faith in ...
170
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5answers
227k views

What are “bitcoin days destroyed”?

The concept of bitcoin days destroyed has been proposed as a measure of bitcoin volume. However, I don't think the bitcoin wiki really explains the idea very well. What is the purpose or advantage of ...
92
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9answers
103k views

Why was 21 million picked as the number of bitcoins to be created?

Why did Satoshi pick 21 million as the number of bitcoins to be created? What is the significance of that number?
13
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8answers
2k views

Could bitcoin be destroyed if an entity cornered the market?

I know the US Government is opposed to competing currencies. It seems that it would be a rather simple solution for them to destroy Bitcoin before it grows too much by merely buying all the currency, ...
13
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4answers
9k views

What happens once the mining reward gets cut in half?

Sometime around the end of 2012 the mining reward is expected to be cut in half from 50BTC/block to 25BTC/block. What effect will this have? Doesn't this mean that it will be less economic to run a ...
10
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8answers
1k views

What are the obstacles to pegging the value of bitcoin to an established stable currency?

Many people will not touch bitcoin due to it's historically extreme volatility. Many new currencies have pegged their value against an established currency until such time as it is sufficiently ...
3
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4answers
710 views

Would bitcoin be destroyed if a wealthy organization obtained a CPU majority for a sustained period?

Inspired by this question ("Could bitcoin be destroyed by an entity cornering the market?") and the top comment on this answer to this question ("How much would it cost to execute a 51% attack?"). ...
3
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2answers
2k views

What research papers cover Bitcoin's impact on Central Banks, “velocity of money”, and reserves?

I'm looking for research papers that cover the impact Bitcoin may have on Central Banking, interest rates, velocity of money, and their reserve. What research papers or information from thought ...
24
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6answers
3k views

Can a bitcoin be destroyed?

Its the hypothetical future and BTC2 is being designed. Everyone loves BTC2 and no-one wants the old BTC1 any more. People who have BTC1 would be annoyed that their assets are suddently worth a lot ...
5
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1answer
698 views

What are some of the proposed ideas to why the Bitcoin dropped to sub $400 in the end of summer 2014?

Having seen that BTC was around $600 early summer of 2014 (May-July). It is currently almost 50% of that value. I read many varying reports of the cause of such a big drop. Can someone give a list of ...
13
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3answers
2k views

Is it possible to estimate the Gini coefficient for Bitcoins and if the trend is increasing or decreasing?

The Gini coefficient is a measure of the inequality of something's distribution, where a value of 0 represents total equality and a value of 1 maximal inequality. Is it possible to perform this type ...
16
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2answers
1k views

Will the amount of electricity used for mining be huge if Bitcoin is widely adopted?

A quick and very rough estimation: If the USD/BTC exchange rate grows to $1000/BTC (not that far-fetched if Bitcoin is actually widely adopted) bitcoins for a value of $300000 would be produced every ...
10
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3answers
798 views

What economics/finance methods and tools can be used to analyze and predict the Bitcoin market?

Bitcoin differs from standard markets in many ways. Some standard market analysis tools are inapplicable due to unique features of Bitcoin. Hence the question What methods/tools can used to analyze ...
12
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4answers
2k views

Does speculation hurt bitcoin?

Related Question: Does hoarding really hurt Bitcoin Does speculation hurt bitcoin? I often hear people complain that speculation is destroying Bitcoin, or that Bitcoin will fail because of ...
3
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3answers
2k views

Will bitcoins be devalued by competing digital currencies? [closed]

Bitcoin is becoming more recognizable and trusted. But as it's popularity increases, the supply isn't going to change significantly because the supply is fixed to the internal mining algorithm. This ...
10
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2answers
3k views

Historical transaction/trade ratio. Available? Useful?

Blockchain.info lists both "Trade Volume" and "Estimated Transaction Volume" in both BTC and USD. It occurred to me that the ratio of one to the other might be a useful metric in determining how much ...
8
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2answers
479 views

Is there a reliable way to measure bitcoin wealth distribution?

Given the difficult of detecting lost coins, or telling between hoarded and lost coins, it seems impossible to actually report on the real wealth distribution of the bitcoin currency.
4
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3answers
4k views

How does Bitcoin “inventor” makes money?

Other than by having a non existent digital code become currency and riding on seeing the previously no-value cash become more valuable, how does the Inventors of Bitcoin profit from developing ...
2
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1answer
377 views

What pressure prevents alternate currencies from completely diluting bitcoin?

Looking into LiteCoin a bit makes me wonder: if LiteCoin were to gain transaction, what's stopping a 3rd, 4th, and 5th currency from gaining traction as well? Wouldn't this effectively eliminate ...
2
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1answer
245 views

Ripple network overhead

I like the way Ripple provides effectively instantaneous transaction verification. When building consensus how much traffic and their equivalent of orphan blocks are accumulated? Is communication ...
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5answers
835 views

Why aren't early adopters intervening in the market in order to stabilize the BTC price?

They have every motivation to do so. Extreme volatility is bad for confidence and can hurt the chance of Bitcoin becoming a respected currency. Say for the sake of argument that Satoshi owns 500,...
5
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3answers
507 views

Are loans with enforced repayment possible on the blockchain?

Are loans with interest possible in Bitcoin, such that repayment is enforceably encoded with Bitcoin Script on the blockchain from the establishment of the lending contract?
3
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2answers
793 views

Can I get an overdraft?

Hypothetically... A uses a desktop bitcoin client, who would like an overdraft facility. B has lots of bitcoins and would like to offer that overdraft and charge interest on the overdrawn amount. ...
11
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4answers
3k views

Why destroy bitcoins?

I keep seeing references to destroying bitcoins by sending them to addresses that nobody can own (e.g., addresses derived from impossible public keys). What would be the reason for doing this? It's ...
13
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6answers
8k views

Why did Bitcoin first start to gain economic value?

I am really having difficulty answering this: Why does a bitcoin have an economic value, such that there are people willing to trade US$ (or any other traditional currency) for these virtual ...
7
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5answers
1k views

Should fractional reserve banking be prohibited through the bitcoin protocol or otherwise, and how could such a change be implemented?

There's a massive macroeconomic debate between Keynesians, who want central banks to control the money supply, and Austrians who want no central banks doing any such thing--or at least competing ...
6
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6answers
5k views

How much energy will the Bitcoin network eventually consume? [duplicate]

A recent Bloomberg article stated that the Bitcoin network currently consumes about half as much energy as the Large Hadron Collider or enough to power 31,000 US homes. Even if the article is way off ...
8
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2answers
2k views

Is Bitcoin's Economic Majority those who already own coins or those who will buy or keep coins?

The Economic Majority theory says that the power to control the Bitcoin protocol is held by those who [own] bitcoins. But the article then goes on to read: The ability for a protocol change to be ...
6
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2answers
3k views

Why are fiat Currencies inflationary and Bitcoin deflationary?

Why are all fiat currencies inflationary, and lose value with time? Could governments make them deflationary? What are the advantages of inflationary currency compared with deflationary currency? ...
3
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6answers
8k views

Who issues bitcoins and how?

I can't find information on who actually issues the bitcoins. I understand that miners generate new bitcoins but what party is responsible for issuance?
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5answers
1k views

How would interest and fractional reserve banking work in a limited money supply?

Suppose Bitcoin lenders (banks, creditors, investors) issue loans with interest. As the total supply of bitcoins approaches the 21M ceiling, the total amount owed in outstanding interest will exceed ...
5
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3answers
714 views

Are there statistics on how Bitcoin holdings are spread among addresses?

I'm aware an address can belong to multiple people, and one person can have multiple addresses. Still, I'd like to assume the number of accounts per person is O(1) on average. Are there statistics on ...
3
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6answers
849 views

In the simplest way possible, describe how the 21 Million limitation is enforced to a non techie

In this Bloomberg video: Gold for Nerds , they ask How is the limitation of 21 million Bitcoins enforced? Though I am very familiar with the technical reasons why and how it's done I haven't seen ...
2
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1answer
1k views

Is there a way to make a crypto-currency stable by design? How? [duplicate]

I'm just wondering if there's any way of creating a crypto-currency that is stable by-design. How would one do so? Can there be something like a "central bank" built in into the currency client? I ...
14
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1answer
2k views

Why is MtGox trying to trademark “Bitcoin”?

Someone on the #mtgox IRC channel pointed me to this. It seems to be an application by Tibanne Co. Ltd. for the Trademark name BITCOIN. I asked MagicalTux on #mtgox about it, but got no answer. Why ...
7
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4answers
2k views

Why did Bitcoin transaction volume heavily increase in November and December of 2011?

Looking at this chart: http://blockchain.info/charts/estimated-transaction-volume It's clear that the amount of bitcoins moved between November 14th and December 12th of 2011 was much larger than any ...
6
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3answers
1k views

Pricing bitcoins

Bitcoin functions as a a quasi-commodity currency and I believe it can be priced according to particular factors, variables, instead of simply by the supply and demand in the exchange order book. The ...
4
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5answers
601 views

Does bitcoin improve on “hard” currencies in any way?

Question is in the title. Anyone who's toyed sufficiently long enough on the foreign exchange understands that currencies are largely driven by sentiment or manipulated on the odd occasion. Plus, ...
3
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2answers
238 views

what is the relationship between the blockchain size and the transaction volume on the network?

I'm thinking about the scalability of the system with regard to the transaction volume. Is it possible to predict future blockchain size for a certain future transaction volume? Is the relationship ...
2
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3answers
3k views

What happens if Bitcoins are lost

Since there are a finite number of Bitcoins that can be created, I am wondering what happens if some of the coins are lost. My questions are three fold: How do you define a "lost" coin? For example ...