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Is Bitcoin a Waste of Resources?

2018; Federal Reserve Bank of St. Louis; Volume: 100; Issue: 2 Linguagem: Inglês

10.20955/r.2018.107-15

2163-4505

Stephen D. Williamson,

Economic Theory and Policy

If nothing else, Bitcoin gives us something to talk about.Economists want to talk about it, economics students want to talk about it, it is a surefire conversation starter with strangers, it is a distraction from politics...But should a sensible person buy the stuff?Should society tolerate it?First, let's review what Bitcoin is.The open-source software for Bitcoin was introduced in 2009, and it represents a decentralized means for transferring ownership of digital objects, along with a decentralized system for augmenting the supply of such objects.Central to how Bitcoin works is the blockchain, which consists of a record of the entire history of ownership of the digital objects-the "coins."The ingenious part of the system (and the hardest part to understand) is how the blockchain is updated.David Andolfatto gives a nice explanation of how blockchains are updated in a companion article in this Review (Andolfatto, 2018), as do Berentsen and Schär (2018).No one owns the blockchain, but it is distributed among the community of users.That is, it is a "distributed ledger.""Miners" (which is really not an apt description of what these people do) compete to form the next block in the chain.Basically their job is the counterpart of what happens in the clearing and settlement process in a centralized monetary system, such as interbank payments.For the system to work, it has to be Do Bitcoin and other cryptocurrencies play a useful social role, or do they represent a social waste?Bitcoin is a decentralized recordkeeping system, with updating of the record of transactions in the blockchain.Potentially, Bitcoin could be useful if it is widely used as a means of payment or as a safe-haven asset.But, given its properties, it is an inefficient and poorly designed means of payment and probably cannot survive as a safe haven asset.Bitcoin could encourage crime, which is a further social cost, but fortunately it may not serve criminals well either.(