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Paper 2021/1605
Inflation-Tracking Proof-of-Work Crypto-Currencies
Charanjit S. Jutla
Abstract
We show that Bitcoin and other egalitarian crypto-currencies are unstable as store-of-value as they fail to track inflation of local currencies closely, and the price dynamic is purely driven by speculation. Based on rational expectations equilibrium, we argue that if the coins awarded during mining are increased in proportion to increase in difficulty of the underlying cryptographic puzzle, then the price of the coin is likely to track inflation of local currencies closely over medium to long term. Further, a hyper-geometric tapering, instead of a geometric tapering, of the mining award over time is recommended for bootstrapping interest in the crypto-currency.
Note: Minor edits and added more citations
Metadata
- Available format(s)
- Category
- Applications
- Publication info
- Preprint. MINOR revision.
- Keywords
- Bitcoinconsensusdigital signatureshash chainrational expectationsKeynes
- Contact author(s)
- csjutla @ us ibm com
- History
- 2021-12-31: revised
- 2021-12-09: received
- See all versions
- Short URL
- https://ia.cr/2021/1605
- License
-
CC BY