I Stumbled Upon A Hidden Trove
When hunting around to find something interesting to read about bitcoin I came across this survey:
It was published on June 3, 2021 by Parthajit Kayal, Assistant Professor (Finance Area), Madras School of Economics and Purnima Rohilla, Madras School of Economics (MSE)
This article is a survey of published academic papers about bitcoin. You can download the 21 page article through the link. The list of cited articles is substantial, and most of these have not likely been read by your typical bitcoiner.
I really want @Undisciplined, a real economist, to read the whole thing, including all of the source material, and give us his opinion, but I resent when people give me homework, unsolicited, so I won’t push.
What You Might Find
Even if you’re not an economist, you might find something that draws your attention. For instance, in the section on Price Dynamics, I found this intriguing and questionable passage:
Using Economic Freedom Index, Viglione (2015) studies the role of governance and other related factors in determining the price of Bitcoin as measured by the willingness of users to pay a premium. This work exhibits that real interest rates, tax burden, and investment freedom across different countries is significant in determining Bitcoin prices. In contrast, inflation rates and monetary freedom across boundaries have no impact on Bitcoin prices.
Some of the arguments mentioned in the survey seem ridiculous, like this one:
Bitcoin may have a fixed supply but the digital currency market is not fixed overall. There are more than two thousand digital currencies available to date and new currencies are getting launched often."
Others are prescient, like this one, which seems to support small blockers before the war started:
An older study by Houy (2014) analyses the economics of Bitcoin transaction fees and finds that efficiency is enhanced by implementing transaction fee and limited block size in mining.
Here’s another passage that caught my eye:
As noted by Yermack (2015) and Ali et al. (2014), a fixed supply will lead to deflation which will, in turn, lead to high welfare destroying volatility. It will be a difficult task indeed to match the variation in demand. Ali et al. (2014) propose that a more flexible system is required to respond to varying demands. One way is to have an adjustable growth rate of currency supply and another is a decentralized voting mechanism. While some researchers predict a possibility of deflation, Lo and Wang (2014) throw light on a possible scenario of hyperinflation if the central bank chooses to oversupply currency. These possible scenarios of deflation and inflation are ruled out by Iwamura et al. (2014b) as they argue that fixed supply will only negatively impact the profitability of mining activity but not lead to a deflation-like situation.
I take issue with the assumption that deflation will automatically lead to “welfare destroying volatility.” or the idea of an adjustable growth rate of currency supply to achieve it.
Final Thoughts
I have barely scratched the surface. The survey and articles will provide plenty of rabbit holes for armchair amateur economists like me, and maybe even some professionals like @Undisciplined