Institutional Repositories DataBase (IRDB) · 2019 · 34 citations · 0 references
Social SciencesEconomicsFinanceFinancial EconomicsFinancial MarketsMonetary EconomicsCentral BankingCryptocurrency RegulationCurrency IssuanceCurrency SubstitutionMonetary PolicyMonetary SystemsCryptocurrency Payment SystemsCurrency InstabilityCurrency Stabilization PolicyMarket Price StabilizationMonetary Policy ImplementationMonetary Policy ResponsesPaymentPayment Vehicle Effects
Although Bitcoin was designed as a payment vehicle and as a store of value, it seems unlikely that currencies provided by central banks are at risk of being replaced, primarily because of the market price instability of Bitcoin. We diagnose the instability as being a symptom of the lack of flexibility in the Bitcoin supply schedule - a predetermined algorithm in which the proof of work is the major driving force. This paper explores the problem of instability from the viewpoint of economics, and suggests a new monetary policy for stabilizing the values of Bitcoin and other cryptocurrencies.