Hostname: page-component-78c5997874-g7gxr Total loading time: 0 Render date: 2024-11-10T08:13:40.322Z Has data issue: false hasContentIssue false
  • English
  • Français

Is Bitcoin a decentralized payment mechanism?

Published online by Cambridge University Press:  20 March 2020

William J. Luther  and
Sean Stein Smith
William J. Luther*
Affiliation:
Department of Economics, Florida Atlantic University, Boca Raton, FL33431, USA
Sean Stein Smith
Affiliation:
Department of Economics and Business, Lehman College, City University of New York, Bronx, NY10468, USA
*
*Corresponding author. Email: wluther@fau.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

We make a distinction between centralized, decentralized, and distributed payment mechanisms. A centralized payment mechanism processes a transaction using a trusted third party. A decentralized payment mechanism processes a transaction between the parties to the transaction. A distributed payment mechanism relies on the network of users to process a transaction on a shared ledger. We maintain that bitcoin is neither a centralized nor a decentralized payment mechanism. It is, instead, a distributed payment mechanism. We then consider decentralized and centralized aspects of the broader bitcoin payment space.

Keywords

Bitcoincentralizedconsensusdecentralizeddistributede-walletexchangegovernancepayments

JEL classification

E40: General E42: Monetary Systems • Standards • Regimes • Government and the Monetary System • Payment Systems E41: Demand for Money
Type
Research Article
Information
Journal of Institutional Economics , Volume 16 , Issue 4 , August 2020 , pp. 433 - 444
Copyright
Copyright © Millennium Economics Ltd 2020

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Aliprantis, C. D., Camera, G. and Puzzello, D. (2007), ‘Anonymous Markets and Monetary Trading’, Journal of Monetary Economics, 540(7): 1905–1928.CrossRefGoogle Scholar
Allen, D. W. E., Berg, C., Lane, A. M. and Potts, J. (2018), ‘Cryptodemocracy and its Institutional Possibilities’, The Review of Austrian Economics, 1–12.Google Scholar
Allen, D. W. E., Berg, C., Markey-Towler, B., Novak, M. and Potts, J. (2020), ‘Blockchain and the Evolution of Institutional Technologies: Implications for Innovation Policy’, Research Policy, 490(1): 1–8.Google Scholar
Ammous, S. (2018) The Bitcoin Standard: The Decentralized Alternative to Central Banking, Hoboken, NJ: John Wiley & Sons.Google Scholar
Baran, P. (1964), ‘On Distributed Communications Networks’, IEEE Transactions on Communications Systems, 120(1): 1–9.Google Scholar
Bashir, I. (2018), Mastering Blockchain: Distributed Ledger Technology, Decentralization, and Smart Contracts Explained, Birmingham: Packt Publishing Ltd.Google Scholar
Berg, A., Berg, C. and Novak, M. (2018 a), ‘Crypto Public Choice’.CrossRefGoogle Scholar
Berg, C., Davidson, S. and Potts, J. (2019), ‘Capitalism after Satoshi: Blockchains, Dehierarchicalisation, Innovation Policy, and the Regulatory State’, Journal of Entrepreneurship and Public Policy.CrossRefGoogle Scholar
Berg, A., Berg, C., Davidson, S. and Potts, J. (2018 b), ‘The Institutional Economics of Identity’.10.2139/ssrn.3072823CrossRefGoogle Scholar
Bohme, R., Christin, N., Edelman, B. and Moore, T. (2015), ‘Bitcoin: Economics, Technology, and Governance’, Journal of Economic Perspectives, 290(2): 213–238.CrossRefGoogle Scholar
Craig, B. R. and Kachovec, J. (2019), ‘Bitcoin's Decentralized Decision Structure’, Economic Commentary, (2019–12): 1–5.Google Scholar
Davidson, S., De Filippi, P. and Potts, J. (2018), ‘Blockchains and the Economic Institutions of Capitalism’, Journal of Institutional Economics, 140(4): 639–658.CrossRefGoogle Scholar
Evans, D. S. (2014), ‘Economic Aspects of Bitcoin and Other Decentralized Public-Ledger Currency Platforms’, University of Chicago Coase-Sandor Institute for Law & Economics Research Paper, 0(685).Google Scholar
Financial Crimes Enforcement Network (2013), ‘Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies’, Technical Report, March 2013. FIN-2013-G001.Google Scholar
Frasser, C. and Guzman, G. (2020), ‘What do we Call Money? An Appraisal of the Money or non-Money View’, Journal of Institutional Economics, 16(1): 25–40.10.1017/S1744137419000419CrossRefGoogle Scholar
Gervais, A., Karame, G. O., Capkun, V. and Capkun, S. (2014), ‘Is Bitcoin a Decentralized Currency?’, IEEE security & privacy, 12(3): 54–60.CrossRefGoogle Scholar
Graf, K. (2013), ‘On the Origins of Bitcoin: Stages of Monetary Evolution’.Google Scholar
Hazlett, P. K. and Luther, W. J. (2020), ‘Is Bitcoin Money? And What That Means’, Quarterly Review of Economics and Finance.Google Scholar
Hendrickson, J. R. and Luther, W. J. (2017 a), ‘Banning Bitcoin’, Journal of Economic Behavior & Organization, 141: 188–195.10.1016/j.jebo.2017.07.001CrossRefGoogle Scholar
Hendrickson, J. R. and Luther, W. J. (2017 b), ‘Cash, Crime, and Cryptocurrency’.Google Scholar
Hendrickson, J. R. and Luther, W. J. (2020), ‘The Value of Bitcoin in the Year 2141 (and Beyond!)’.Google Scholar
Hendrickson, J. R., Hogan, T. L. and Luther, W. J. (2016), ‘The Political Economy of Bitcoin’, Economic Inquiry, 540(2): 925–939.CrossRefGoogle Scholar
Kiyotaki, N. and Moore, J. (2002), ‘Evil is the Root of all Money’, American Economic Review, 920(2): 62–66.CrossRefGoogle Scholar
Lagos, R. and Wright, R. (2008), ‘When is Money Essential? A Comment on Aliprantis, Camera and Puzzello’.Google Scholar
Luther, W. J. (2016 a), ‘Bitcoin and the Future of Digital Payments’, Independent Review, 200(3): 397–404.Google Scholar
Luther, W. J. (2016 b), ‘Cryptocurrencies, Network Effects, and Switching Costs’, Contemporary Economic Policy, 340(3): 553–571.CrossRefGoogle Scholar
Luther, W. J. (2016 c), ‘Mises and the Moderns on the Inessentiality of Money in Equilibrium’, Review of Austrian Economics, 290(1): 1–13.CrossRefGoogle Scholar
Luther, W. J. (2016 d), ‘Regulating Bitcoin: On What Grounds?’, in Peirce, H. and Klutsey, B. (eds.), Reframing Financial Regulation: Enhancing Stability and Protecting Consumers, Arlington, VA: Mercatus Center at George Mason University, pp. 391–415.Google Scholar
Luther, W. J. (2018), ‘Is Bitcoin Intrinsically Worthless?’, Journal of Private Enterprise, 330(1): 31–45.Google Scholar
Luther, W. J. (2019), ‘Getting of the Ground: The Case of Bitcoin’, Journal of Institutional Economics, 150(2): 189–205.CrossRefGoogle Scholar
Luther, W. J. (2020), ‘Regulatory Ambiguity in the Market for Bitcoin’, Review of Austrian Economics.CrossRefGoogle Scholar
Luther, W. J. and Olson, J. (2015), ‘Bitcoin is Memory’, Journal of Prices & Markets, 30(3): 22–33.Google Scholar
Luther, W. J. and Salter, A. W. (2017), ‘Bitcoin and the Bailout’, The Quarterly Review of Economics and Finance, 66: 50–56.10.1016/j.qref.2017.01.009CrossRefGoogle Scholar
Luther, W. J. and White, L. H. (2014), ‘Can Bitcoin Become a Major Currency?’, Cayman Financial Review, 36: 78–79.Google Scholar
Poon, J. and Dryja, T. (2016), ‘The Bitcoin Lightning Network: Scalable Off-Chain Instant Payments’.Google Scholar
Reyes, C. L. (2016), ‘Moving Beyond Bitcoin to an Endogenous Theory of Decentralized Ledger Technology Regulation: An Initial Proposal’, Villanova Law Review, 61(1): 191.Google Scholar
Selgin, G. A. (1988), The Theory of Free Banking: Money Supply Under Competitive Note Issue, Lanham, MD: Rowman & Littlefield.Google Scholar
Selgin, G. A. (2015), ‘Synthetic Commodity Money’, Journal of Financial Stability, 17: 92–99.CrossRefGoogle Scholar
Selgin, G. A. and White, L. H. (1987), ‘The Evolution of a Free Banking System’, Economic Inquiry, 250(3): 439–457.CrossRefGoogle Scholar
Selgin, G. A. and White, L. H. (1994), ‘How would the Invisible Hand Handle Money?’, Journal of Economic Literature, 320(4): 1718–1749.Google Scholar
Smit, J. P., Buekens, F. and Du Plessis, S. (2016), ‘Cigarettes, Dollars and Bitcoins – An Essay on the Ontology of Money’, Journal of Institutional Economics, 120(2): 327–347.10.1017/S1744137415000405CrossRefGoogle Scholar
Smith, V. C. (1990), The Rationale of Central Banking and the Free Banking Alternative, Indianapolis: Liberty Fund.Google Scholar
Tschorsch, F. and Scheuermann, B. (2016), ‘Bitcoin and Beyond: A Technical Survey on Decentralized Digital Currencies’, IEEE Communications Surveys & Tutorials, 180(3): 2084–2123.10.1109/COMST.2016.2535718CrossRefGoogle Scholar
Voorhees, E. (2015), ‘Is Bitcoin Truly Decentralized? Yes – and Here is Why It's Important’, Bitcoin Magazine.Google Scholar
White, L. H. (1984), Free Banking in Britain: Theory, Experience, and Debate, 1800–1845, Cambridge: Cambridge University Press.Google Scholar
White, L. H. (2007), ‘Payments System Innovations in the United States since 1945 and their Implications for Monetary Policy’, in Institutional Change in the Payments System and Monetary Policy, London: Routledge, pp. 43–58.Google Scholar
White, L. H. (2015), ‘The Market for Cryptocurrencies’, Cato Journal, 350(2): 383–402.Google Scholar
Yermack, D. (2015), ‘Is Bitcoin a Real Currency? An Economic Appraisal’, in Chuen, D. L. K. (ed), Handbook of Digital Currency, Cambridge, MA: Academic Press, pp. 31–43.10.1016/B978-0-12-802117-0.00002-3CrossRefGoogle Scholar