Session Title: "Bitcoin as Money in Theory"
Speaker: Jacek Antoni Rothert, Associate Professor of Economics, United States Naval Academy, USA
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Session description: What does economic theory tell us about the desirability of Bitcoin replacing sovereign-issued money? Money fulfills three roles. It serves as: (1) medium of exchange, (2) unit of account, and (3) store of value. Bitcoin as a medium of exchange has some advantages government-issued money: when very large transactions need to be verified and approved quickly or remain anonymous. It is unclear which transactions outside of the criminal world have such needs. For small transactions (e.g., buying a coffee), the 10 minutes wait to have the transaction approved rules Bitcoin out. Bitcoin is a very poor unit of account. Its main problem is the fixed supply, paradoxically its main selling point in social media. A unit of account is supposed to help us compare relative value of individual goods between each other, and their changes over time. If my car insurance premium rises by 20%, is it an increase in the general price level or is my insurance company taking advantage of me? General price stability is key for a good unit of account. Fixed supply combined with volatile demand implies lack of price stability. Bitcoin is a very poor store of value over a short time horizon, because if its built-in price volatility. It can be a decent store of value over a longer time horizon (because it has a fixed supply), as long as the first-mover advantage in the crypto industry is sufficiently important (it really becomes a “digital gold”), and the crypto-based economy becomes large (the “digital gold” will be something people want to hold, instead of or in addition to the real gold).

Bio:  Jacek Rothert is an Associate Professor in the Department of Economics at the United States Naval Academy. He holds a Ph.D. in Economics from the University of Minnesota, Twin Cities. Professor Rothert’s research focuses on macroeconomic theory and international economics. He is interested in the macroeconomic aspects of blockchain technology and the role that cryptocurrencies and decentralized finance can play in developing economies, in particular in enhancing access to financial markets.