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Rod Garratt, Michael Lee, Brendan Malone, and Antoine Martin
Digital currencies, including potential central bank digital currencies (CBDC), have generated a lot of interest over the past decade, since the emergence of Bitcoin. The interest has only grown in recent months because of a desire for contactless payment methods, stemming from the coronavirus pandemic. In this post, we discuss a common distinction made between “token-based” and “account-based” digital currencies. We show that this distinction is problematic because Bitcoin and many other digital currencies satisfy both definitions.
Bitcoin, and more generally, cryptocurrencies, are often described as a new type of money. In this post, we argue that this is a misconception. Bitcoin may be money, but it is not a new type of money. To see what is truly new about Bitcoin, it is useful to make a distinction between “money,” the asset that is being exchanged, and the “exchange mechanism,” that is, the method or process through which the asset is transferred. Doing so reveals that monies with properties similar to Bitcoin have existed for centuries. However, the ability to make electronic exchanges without a trusted party—a defining characteristic of Bitcoin—is radically new. Bitcoin is not a new class of money, it is a new type of exchange mechanism, and this type of exchange mechanism can support a variety of forms of money as well as other types of assets.
Sean Hundtofte, Michael Junho Lee, Antoine Martin, and Reed Orchinik
Having witnessed the dramatic rise and fall in the value of cryptocurrencies over the past year, we wanted to learn more about what motivates people to participate in this market. To find out, we included a special set of questions in the May 2018 Survey of Consumer Expectations, a project of the New York Fed’s Center for Microeconomic Data. This blog post summarizes the results of that survey, shedding light on U.S. consumers’ depth of participation in cryptocurrencies and their motives for entering this new market.
Bitcoin and other “cryptocurrencies” have been much in the news lately, in part because of their wild gyrations in value. Michael Lee and Antoine Martin, economists in the New York Fed’s Money and Payment Studies function, have been following cryptocurrencies and agreed to answer some questions about digital money.
Bitcoin is the most popular virtual currency yet developed. Proponents assert that bitcoin can remove frictions involved in payment and settlement systems by eliminating the need for the financial intermediaries that exist in traditional currencies. In this blog post, we show that while bitcoin transfers themselves are relatively frictionless for the user, there are significant frictions when bitcoins trade in exchange markets resulting in meaningful and persistent price differences across bitcoin exchanges. These exchange-related frictions reduce the incentive of market participants to use bitcoin as a payments alternative.
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