Humboldt-Universität zu Berlin - High Dimensional Nonstationary Time Series

IRTG1792DP2018 008

A Monetary Model of Blockchain

Anna Almosova

The recent emergence of blockchain-based cryptocurrencies has received a
considerable attention. The growing acceptance of cryptocurrencies has led
many to speculate that the blockchain technology can surpass a traditional
centralized monetary system. However, no monetary model has yet been de-
veloped to study the economics of the blockchain. This paper builds a model
of the economy with a single generally acepted blockchain-based currency. In
the spirit of the search and matching literature I use a matching function to
model the operation of the blockchain. The formulation of the money demand
is taken from a workhorse of monetary economics - Lagos and Wright (2005).
I show that in a blockchain-based monetary system money demand features
a precautionary motive which is absent in the standard Lagos-Wright model.
Due to this precautionary money demand the monetary equilibrium can be
stable for some calibrations. I also used the developed model to study how
the equilibrium return on money is

Blockchain, Miners, Cryptocurrency, Matching function

JEL classification:
E40, E41, E42