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Cryptocurrency and double spending history: transactions with zero confirmation

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Abstract

We develop a general equilibrium model of cryptocurrency to study a double spending prevention mechanism without payment confirmations. Agents trade cryptocurrency using a digital wallet, and the cryptocurrency system provides a means to verify a wallet’s double spending history. A digital wallet may obtain a good reputation for no double spending attempts based on its transaction history. If a buyer makes a payment with a digital wallet that does not have a good reputation, sellers provide goods after payment confirmations in the blockchain to prevent a double spending attack. On the other hand, sellers deliver goods immediately without payment confirmations if the payment is made through a digital wallet with a good reputation as long as the cost of losing a good reputation outweighs the short-run gain from double spending. As the time required for each confirmation increases, the utility loss from delayed delivery of goods increases so double spending incentives decrease.

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  1. School of Business, Yonsei University, 50 Yonsei-ro, Seodaemun-gu, Seoul, 03722, South Korea

    Kee-Youn Kang

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  1. Kee-Youn Kang
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Correspondence to Kee-Youn Kang.

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I have benefited from discussion with Yongsung Chang, Jonathan Chiu, Inkee Jang, Young Sik Kim, Seungduck Lee, Emiliano Pagnotta, Harald Uhlig, Christopher Waller, Stephen Williamson, Randall Wright, and Menghan Xu as well as with all seminar participants at 2019 Summer Workshop on Money, Banking, Payments and Finance at the Bank of Canada, 2019 Workshop of the Australasian Macroeconomic Society, Korea University, Seoul National University, Yonsei University, and Xiamen University. This work was supported by New Scholars Grant Program from the Korean Securities Association and Mirae Asset in 2019 and (in part) by the Yonsei University Research Fund of 2019-22-0117.

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Kang, KY. Cryptocurrency and double spending history: transactions with zero confirmation. Econ Theory 75, 453–491 (2023). https://doi.org/10.1007/s00199-021-01411-3

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