The Workshop is co-sponsored by the Columbia Business School Program for Financial Studies.
Gur Huberman, Robert G. Kirby Professor of Behavioral Finance at Columbia Business School will lead the Workshop. The discussion will focus on the stability of the Bitcoin system and its long-run viability. Key to its viability lies in congestion and the associated fees paid by users to keep miners at work.
Although radically different from a traditional payment system, Bitcoin is functional and transmits value over the internet. Having fixed transaction processing capacity, it experiences service delays which motivate users to pay for service priority. These fees fund the computer servers (“miners”) which support Bitcoin. This paper models Bitcoin as a platform that intermediates between users and miners. It derives closed form formulas of the fees and waiting times and studies their properties; compares the economics of the Bitcoin payment system (BPS) to that of a traditional payment system operated by a profit maximizing firm; and suggests protocol design modification to enhance the platform’s efficiency. The appendix describes and explains the main attributes of Bitcoin and the underlying blockchain technology.