<p>There is quite a bit of research on it and a good argument as to why central banks should not issue cryptocurrencies, but should issue electronic money.  I would recommend reading <a href="https://research.stlouisfed.org/publications/review/2018/02/13/the-case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-cryptocurrencies/" rel="noreferrer">https://research.stlouisfed.org/publications/review/2018/02/13/the-case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-cryptocurrencies/</a></p>

<p>and </p>

<p><a href="https://research.stlouisfed.org/publications/review/2018/02/13/blockchain-what-it-is-what-it-does-and-why-you-probably-dont-need-one/" rel="noreferrer">https://research.stlouisfed.org/publications/review/2018/02/13/blockchain-what-it-is-what-it-does-and-why-you-probably-dont-need-one/</a></p>

<p><a href="https://research.stlouisfed.org/publications/review/2018/02/13/is-bitcoin-a-waste-of-resources/" rel="noreferrer">https://research.stlouisfed.org/publications/review/2018/02/13/is-bitcoin-a-waste-of-resources/</a></p>

<p>Nothing about cryptocurrencies is surprising to me.  Indeed, the separate parts have been in use, in some cases, for hundreds of years.  Bitcoin is a clever combination of things that have long existed.  The other cryptocurrencies, such as Etherium, also offer self-executing contracts.  Those are also very old.  The simplest that you may physically see are sight drafts, which are common in the southeastern United States.  It is a draft printed on an envelope and is payable only when the envelope contains a properly executed document.</p>

<p>There is nothing surprising to me about how cryptocurrencies are behaving, but they cannot continue like this and they won't.  You should read "Good Money," by George Selgin, who writes about the creation of private money in Britain by button makers to meet an unfilled demand.</p>

<p>What you are seeing is a process by which people learn.  If you think this whole process through, you will find that you will not want to participate in this little revolution until supply and demand intersect.  By limiting the number of coins the various firms have created artificial scarcity.  However, we now have 759 cryptocurrencies and growing.  Each one makes the others just a little less valuable.  Although there is an argument against a central bank entering the market, if one did, the private money would vanish if the official money could be exchanged at a 1 to 1 rate.</p>

<p>Imagine the impact on Bitcoin prices if the Chinese or British central bank allowed people to walk in the door and exchange their cyptocurrency directly for cash?  No trading costs?  Think about how easy it would be to pop this bubble.  What if Bank of America were to offer one instead of an unknown, small, private company?  What if they allowed direct deposits and withdrawals?  What if they paid the mining costs to their own computers?</p>

<p>You are looking at the modern version of the South Sea Bubble or the Tulip Bubble.  When people are learning and making money, they do funny things.</p>

CC BY-SA 3.0
2018-05-01T17:31:46.397Z
Interesting - will check those links.  Just one edit I would suggest; there are now a little under 1600 coins and tokens.
Venture2099
CC BY-SA 4.0
2019-03-22T19:37:10.873Z
So I'm reading the above links, almost a year after they were posted here, and I must say that most of the "research" is excessively poorly done, with a huge anti bitcoin spin on it, and I think by now we all know bitcoin is here to stay 
Ninjanoel
CC BY-SA 3.0
2018-05-01T17:29:23.503Z
2018-05-01T17:29:23.503Z
Dave Harris
<p>for an interesting read, there is this <a href="https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004-4934624-178449.pdf" rel="nofollow noreferrer">PDF</a> detailing a comment about a recent Bitcoin EFT (exchange traded funds) proposal, and in it he outlines how bitcoin isn't a currency for various reasons, but ignores that it actually IS being used as a currency.</p>

<p><a href="https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004-4934624-178449.pdf" rel="nofollow noreferrer">https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004-4934624-178449.pdf</a> (link at the top to the sixth response details nine currencies in history and how they were created, and hence why he thinks bitcoin is not a currency)</p>

<p>p.s. I don't agree with the overall opinion in the pdf, but it is an interesting read</p>

CC BY-SA 4.0
2019-03-22T17:26:00.003Z
2019-03-22T17:26:00.003Z
Ninjanoel
<p>To date, they're behaving exactly as we'd expect them to, given their nature as ponzi schemes in a speculative bubble.</p>

<p>Cryptocurrency adoption is not violating any widely held economic tenets: these ponzi schemes are behaving in line with the economic tenets that cover these things.</p>

<p>The speculative bubble of cryptocurrencies is very much in line with our understanding within behavioural economics of how foolish people with money behave when faced with a superficially appealing proposition that they don't fully understand.</p>

CC BY-SA 3.0
2018-05-01T13:21:56.070Z
This seems unnecessarily combative and without academic references.
Venture2099
CC BY-SA 3.0
2018-05-01T16:42:34.757Z
And yet spot on, nevertheless
410 gone
CC BY-SA 3.0
2018-05-01T17:28:15.800Z
I doubt it.  If I had the ability I would flag for mod intervention or deletion.  We both know this is not an answer.
Venture2099
CC BY-SA 3.0
2018-05-01T19:00:49.410Z
It completely answers the question you asked. I realise that you don't like the answer.
410 gone
CC BY-SA 3.0
2018-05-01T19:41:42.940Z
It doesn't answer anything and we both know it.  Since when does Stack Exchange allow single line answers?
Venture2099
CC BY-SA 3.0
2018-05-01T20:34:19.157Z
Speculative bubbles can be described using any/all of the standard economic "laws". The presence of positive demand for transactional purposes does not negate the possibility of fundamentally speculative demand.
nathanwww
CC BY-SA 4.0
2018-05-02T09:31:22.967Z
@Venture2099 there you go, I've elaborated.
410 gone
CC BY-SA 4.0
2018-05-02T12:58:39.737Z
Yeh, no.  Enjoy your downvotes.  They didn't even come from me.
Venture2099
CC BY-SA 4.0
2018-05-01T12:35:47.147Z
2018-05-02T09:30:12.233Z
2018-05-02T09:30:12.233Z
410 gone
<p>Cryptocurrencies can be analysed from different perspectives: from the <strong>monetary perspective</strong> or from the <strong>asset &amp; security</strong> perspective. The difference is: a digital asset is a good with some value which can be used/consumed for something, while currency is used as a store of value and mean of trade. I would say that currently is mostly being traded as an investment and not as currency, because it is bought to be sold for an higher price later, not to pay for goods and services.</p>

<p>Analysing it as an asset there is little surprise, as <a href="https://economics.stackexchange.com/users/11321/dave-harris">Dave Harris</a> explained: they are an asset being traded speculatively, acting as expected in these conditions. </p>

<p>I haven't found analysis of it as currency, I assume because there is little evidence of it being used as such for legal purposes (most legal payments are not done with bitcoin). From what we know until now, there is little evidence of unexpected behaviour from a monetary perspective.</p>

<p>For further reading, take a look at this <a href="https://blockchainlibrary.org/2017/10/most-cited-cryptocurrency-publications/" rel="nofollow noreferrer">list of most cited crypocurrency publications</a>. </p>

CC BY-SA 4.0
2018-05-06T07:42:48.223Z
2018-05-06T08:29:39.220Z
2018-05-06T08:29:39.220Z
JoaoBotelho
<p><em>This is not a homework question.  I am merely interested.</em> </p>

<p>As an academic discipline, Economics refers to various laws and widely held beliefs including, but not exclusive to;</p>

<ul>
<li>Production precedes consumption</li>
<li>Value is subjective</li>
<li>Production has cost</li>
<li>Money is not wealth</li>
<li>Supply and demand </li>
</ul>

<p>Etc etc.</p>

<p>Is the rise of cryptocurrency refuting or violating any typically held economic beliefs?  <strong>Or, inversely, are cryptocurrencies/society acting exactly as Economics would logically predict?</strong></p>

<cryptocurrency>
Is any aspect of the cryptocurrency adoption violating a widely held economic tenet?
Venture2099
# Is any aspect of the cryptocurrency adoption violating a widely held economic tenet?

(Asked by: username_0 on 2018-05-01)

*This is not a homework question. I am merely interested.*

As an academic discipline, Economics refers to various laws and widely held beliefs including, but not exclusive to;

* Production precedes consumption
* Value is subjective
* Production has cost
* Money is not wealth
* Supply and demand

Etc etc.

Is the rise of cryptocurrency refuting or violating any typically held economic beliefs? **Or, inversely, are cryptocurrencies/society acting exactly as Economics would logically predict?**

**Tags:** cryptocurrency


---

## 4 answers

### Answer by username_5 on 2018-05-06. Score: 3 | Accepted answer

Cryptocurrencies can be analysed from different perspectives: from the **monetary perspective** or from the **asset & security** perspective. The difference is: a digital asset is a good with some value which can be used/consumed for something, while currency is used as a store of value and mean of trade. I would say that currently is mostly being traded as an investment and not as currency, because it is bought to be sold for an higher price later, not to pay for goods and services.

Analysing it as an asset there is little surprise, as [username_1 username_1](https://economics.stackexchange.com/users/11321/username_1) explained: they are an asset being traded speculatively, acting as expected in these conditions.

I haven't found analysis of it as currency, I assume because there is little evidence of it being used as such for legal purposes (most legal payments are not done with bitcoin). From what we know until now, there is little evidence of unexpected behaviour from a monetary perspective.

For further reading, take a look at this [list of most cited crypocurrency publications](https://blockchainlibrary.org/2017/10/most-cited-cryptocurrency-publications/).


---

### Answer by username_1 on 2018-05-01. Score: 5

There is quite a bit of research on it and a good argument as to why central banks should not issue cryptocurrencies, but should issue electronic money. I would recommend reading <https://research.stlouisfed.org/publications/review/2018/02/13/the-case-for-central-bank-electronic-money-and-the-non-case-for-central-bank-cryptocurrencies/>

and

<https://research.stlouisfed.org/publications/review/2018/02/13/blockchain-what-it-is-what-it-does-and-why-you-probably-dont-need-one/>

<https://research.stlouisfed.org/publications/review/2018/02/13/is-bitcoin-a-waste-of-resources/>

Nothing about cryptocurrencies is surprising to me. Indeed, the separate parts have been in use, in some cases, for hundreds of years. Bitcoin is a clever combination of things that have long existed. The other cryptocurrencies, such as Etherium, also offer self-executing contracts. Those are also very old. The simplest that you may physically see are sight drafts, which are common in the southeastern United States. It is a draft printed on an envelope and is payable only when the envelope contains a properly executed document.

There is nothing surprising to me about how cryptocurrencies are behaving, but they cannot continue like this and they won't. You should read "Good Money," by George Selgin, who writes about the creation of private money in Britain by button makers to meet an unfilled demand.

What you are seeing is a process by which people learn. If you think this whole process through, you will find that you will not want to participate in this little revolution until supply and demand intersect. By limiting the number of coins the various firms have created artificial scarcity. However, we now have 759 cryptocurrencies and growing. Each one makes the others just a little less valuable. Although there is an argument against a central bank entering the market, if one did, the private money would vanish if the official money could be exchanged at a 1 to 1 rate.

Imagine the impact on Bitcoin prices if the Chinese or British central bank allowed people to walk in the door and exchange their cyptocurrency directly for cash? No trading costs? Think about how easy it would be to pop this bubble. What if Bank of America were to offer one instead of an unknown, small, private company? What if they allowed direct deposits and withdrawals? What if they paid the mining costs to their own computers?

You are looking at the modern version of the South Sea Bubble or the Tulip Bubble. When people are learning and making money, they do funny things.

> **Comments:**
> **username_0**: Interesting - will check those links.  Just one edit I would suggest; there are now a little under 1600 coins and tokens.  
> **username_2**: So I'm reading the above links, almost a year after they were posted here, and I must say that most of the "research" is excessively poorly done, with a huge anti bitcoin spin on it, and I think by now we all know bitcoin is here to stay   

---

### Answer by username_2 on 2019-03-22. Score: 0

for an interesting read, there is this [PDF](https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004-4934624-178449.pdf) detailing a comment about a recent Bitcoin EFT (exchange traded funds) proposal, and in it he outlines how bitcoin isn't a currency for various reasons, but ignores that it actually IS being used as a currency.

<https://www.sec.gov/comments/sr-cboebzx-2019-004/srcboebzx2019004-4934624-178449.pdf> (link at the top to the sixth response details nine currencies in history and how they were created, and hence why he thinks bitcoin is not a currency)

p.s. I don't agree with the overall opinion in the pdf, but it is an interesting read


---

### Answer by username_3 on 2018-05-01. Score: -1

To date, they're behaving exactly as we'd expect them to, given their nature as ponzi schemes in a speculative bubble.

Cryptocurrency adoption is not violating any widely held economic tenets: these ponzi schemes are behaving in line with the economic tenets that cover these things.

The speculative bubble of cryptocurrencies is very much in line with our understanding within behavioural economics of how foolish people with money behave when faced with a superficially appealing proposition that they don't fully understand.

> **Comments:**
> **username_0**: This seems unnecessarily combative and without academic references.  
> **username_3**: And yet spot on, nevertheless  
> **username_0**: I doubt it.  If I had the ability I would flag for mod intervention or deletion.  We both know this is not an answer.  
> **username_3**: It completely answers the question you asked. I realise that you don't like the answer.  
> **username_0**: It doesn't answer anything and we both know it.  Since when does Stack Exchange allow single line answers?  
> **username_4**: Speculative bubbles can be described using any/all of the standard economic "laws". The presence of positive demand for transactional purposes does not negate the possibility of fundamentally speculative demand.  
> **username_3**: @username_0 there you go, I've elaborated.  
> **username_0**: Yeh, no.  Enjoy your downvotes.  They didn't even come from me.  

---

