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Virtual Money Illusion and the Fundamental Value of Non-Fiat Anonymous Digital Payment Methods

Coining a (Bit of) Theory to Describe and Measure the Bitcoin Phenomenon
  • Greg W. Hunter
  • Craig KerrEmail author
Article

Abstract

This paper discusses the determinants of a Non-Fiat Anonymous Digital Payment Method’s (N-FAD) value and illustrates a relationship between N-FAD transactions, economic growth, and inflation. The relationship raises a heretofore unmentioned issue concerning the ability of monetary authorities to operate effectively, which justifies regulatory concerns over bitcoin and other N-FADs. Our method of analysis allows for empirical estimates that characterize the magnitude of the concern, as it relates to the use of bitcoin. Finally, we are able to identify the stylized features of bitcoin that complicate monetary policy, comment on how they relate to the value of N-FADs more generally, and provide suggestions for future research.

Keywords

Crypto currency Bitcoin Quantity equation 

Notes

Acknowledgements

Funding for this research was provided by the CSU Chancellors office through California State Polytechnic University. We would like to thank Gabriele Camera, Edmond Wu, and an anonymous reviewer for useful comments that improved this paper.

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Copyright information

© International Atlantic Economic Society 2019

Authors and Affiliations

  1. 1.Economics DepartmentCalifornia State Polytechnic UniversityPomonaUSA

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