The Lightning Network: Turning Bitcoin into money

Article Business, Finance

Bitcoin's limited adoption problem

Franz J. Hinzen et al.

Summary: We theoretically demonstrate that the limited adoption of Bitcoin is not a temporary property but an equilibrium outcome. This is driven by negative network effects caused by Bitcoin's need for consensus and network delay. As the Bitcoin network expands, network delay increases, prolonging the time required for generating consensus, leading to prolonged transaction settlement and user abandonment, resulting in limited adoption. Increasing transaction rates fails to solve this problem as it increases fork probabilities, prolongs the consensus process, and generates limited adoption.

JOURNAL OF FINANCIAL ECONOMICS (2022)

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Article Economics

Monopoly without a Monopolist: An Economic Analysis of the Bitcoin Payment System

Gur Huberman et al.

Summary: The decentralized design of Bitcoin protects users from monopoly pricing, with competition among service providers and free entry ensuring no entity can affect users' fees. Fees in the transaction-processing market are determined by users' priority and avoiding delays, with protocol design modifications suggested to enhance efficiency.

REVIEW OF ECONOMIC STUDIES (2021)

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Article Business, Finance

Risks and Returns of Cryptocurrency

Yukun Liu et al.

Summary: Cryptocurrency returns are driven by factors specific to cryptocurrency markets, including network factors and production factors. There is a strong time-series momentum effect, and proxies for investor attention can effectively forecast future cryptocurrency returns.

REVIEW OF FINANCIAL STUDIES (2021)

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Article Multidisciplinary Sciences