Bitcoin and Blockchain

Transcription

1 Bitcoin and Blockchain Susan Athey, Stanford GSB Disclosures: Boards of Ripple, Coincenter advisor to NYCA (fintech VC) Papers: Bitcoin Pricing, Adoption, and Usage (Athey, Parashkevov, Sarukkai, Xia, 2016) The Digital Privacy Paradox: Small Money, Small Costs, Small Talk (Athey, Catalini, Tucker, 2017)

2 The Essence of Bitcoin: A Secure Ledger From Address To Address Bitcoins 1KuXJJqc 38FsE88x 1 27Zsi2Ti 3u9Ae38i xP3sjd 2q9a8sIl How is security achieved? Decentralized payment processing.

3 The Essence: A Secure Ledger 38FsE88x From Address To Address Bitcoins 3u9Ae38i Address owner uses key to authorize movement of 1 bitcoin from address 38FsE88x to address 3u9Ae38i 1KuXJJqc 38FsE88x 1 27Zsi2Ti 3u9Ae38i xP3sjd 2q9a8sIl Approximately 10 minutes later From Address To Address Bitcoins 1KuXJJqc 38FsE88x 1 27Zsi2Ti 3u9Ae38i xP3sjd 2q9a8sIl FsE88x 3u9Ae38i 1

4 Why Not This? From Address To Address Dollars 1KuXJJqc 38FsE88x $1 27Zsi2Ti 3u9Ae38i $ xP3sjd 2q9a8sIl $100.23

5 A Secure Ledger for Multiple Currencies 38FsE88x From Address To Address Dollars 3u9Ae38i Address owner uses key to authorize movement of 1 DOLLAR from address 38FsE88x to address 3u9Ae38i 1KuXJJqc 38FsE88x $1 27Zsi2Ti 3u9Ae38i $ xP3sjd 2q9a8sIl $ This is just a message. Approximately 10 minutes Need more to later move funds. From Address To Address Dollars 1KuXJJqc 38FsE88x $1 27Zsi2Ti 3u9Ae38i $ xP3sjd 2q9a8sIl $ FsE88x 3u9Ae38i $1

6 A Secure Ledger for Multiple Currencies? 38FsE88x From Address To Address Dollars 3u9Ae38i Address owner uses key to authorize movement of 1 DOLLAR from address 38FsE88x to address 3u9Ae38i ACH transfer?? Timeline/Fees? 1KuXJJqc 38FsE88x BOA $1 27Zsi2Ti 3u9Ae38i Chase $ xP3sjd 2q9a8sIl Wells $ Approximately 10 minutes later From Address To Address Dollars 1KuXJJqc 38FsE88x BOA $1 27Zsi2Ti 3u9Ae38i Chase $ xP3sjd 2q9a8sIl Wells $ FsE88x 3u9Ae38i Chase $1

7 Moving Funds Through Bitcoin Initiate $ transfer through linked account Funds flow through ACH or wire Service makes funds available immediately for bitcoin purchase (Coinbase) Other onramps possible Initiate Yen transfer through linked account or wire transfer Other off-ramps possible Bitcoin Exchange USD / Bitcoin Bitcoin transfer Receiver s bitcoin wallet Bitcoin transfer Bitcoin Exchange Bitcoin / Yen Exchange rate volatility matters for short time causes a friction, but decline in average value does not affect utility Trust issue with exchanges

8 Three Views on Digital Currency 1. Store of Value 2. Payment System 3. Platform/Technology Remittances Asset registry Settlement system Smart contracts Blockchain applications STANFORD GRADUATE SCHOOL OF BUSINESS 7

9 Applications to Date Some consumer payments International Bank to Bank, Payment Services (Ripple) Technology to connect mobile operators in Africa (Gates Foundation, Ripple) In progress Asset registry Token economies Smart contract applications Many startups STANFORD GRADUATE SCHOOL OF BUSINESS 8

10 Bitcoin Pricing, Adoption, and Usage Susan Athey (Stanford GSB and MSR) Ivo Parashkevov (Trulify) Vishnu Sarukkai (Stanford) Jing Xia (Harvard, Cornerstone)

11 Equilibrium Dollar Value of Bitcoin: Room in the Pipe Static view: if people want to send $X through B bitcoins, equilibrium exchange rate is $X/B.

12 A Model of Bitcoin Adoption: Remittance Model Infinite horizon model Some chance Bitcoin has flaw, learn over time Risk averse users need to make int l payments Choose Bitcoin (exchange rate fluctuations), traditional (fee) Recipient cashes out upon receipt (to other users who want to remit) Exchange rates set by supply and demand Heterogeneous costs of using Bitcoin Over time, volatility decreases and more people adopt, reducing volatility STANFORD GRADUATE SCHOOL OF BUSINESS 11

13 Model Dynamics Theorem: 1. There exists a unique equilibrium with eventual full adoption. 2. The set of costs that use Bitcoin increases over time. 3. The distribution of exchange rates increases by FOSD order over time. STANFORD GRADUATE SCHOOL OF BUSINESS 12

14 Speculation/Investors Users risk aversion and costs profitable opportunities to invest in Bitcoin We find an equilibrium where investors invest initially and then stop when market reaches steady state; this increases initial exchange rate and leads growth of exchange rate to track beliefs about final steady state and current viability If investors exogenously take a certain set of Bitcoins permanently off the market (or some are lost), this increases exchange rate proportionally We do not incorporate other possibly realistic effects, such as speculative bubbles Model also leaves out: Competition from other virtual currencies (reduces demand, perhaps alters beliefs about viability Other use cases of Bitcoin as a platform

15 Empirical Analysis of the Ledger (through 2015) Most people buy and hold Use cases: gambling, contraband Increasing use of privacy-preserving behavior over time; more use by contraband buyers STANFORD GRADUATE SCHOOL OF BUSINESS 14

16 Velocity of Bitcoins Velocity of bitcoins = Transaction Volume in $ ( Market Cap = # bitcoins X Exchange rate $/bitcoin )

17 Value of Bitcoins Exchange rate $/bitcoin = Transaction Volume in $ (# bitcoins X velocity of bitcoins)

18 Millions (Log Scale) Bitcoin Market Capitalization and Transaction Volume Market Capitalization and Transaction Volume Jun-12 Dec-12 Jul-13 Jan-14 Aug-14 Feb-15 Sep-15 Market Capitalization 365 Day Trans Vol ($) (Est., No Exch.) 30-Day Trans Vol ($) (Scaled to 365, Est., No Exch.) 30 day (annualized) volume tracks market cap more closely in changing market

19 Bitcoin Velocity Velocity Day Velocity (Est., No Exch) 30 Day Velocity (Est., No Exch) Velocity varies over time, mostly within a range Model not designed for speculative activity

20 What Should Affect Bitcoin Velocity? Measurement issues (transactions v. speculation) Velocity is actually poorly understood in the traditional economy Some factors that might affect bitcoin: Share of different use cases (utility v. speculation, etc.) Bitcoins lost or confiscated Opportunities to trade with bitcoin Opening and closing of exchanges Habits and apps Some technical changes/applications may change velocity and transaction volume proportionally

21 Value of Bitcoins Exchange rate $/bitcoin = Transaction Volume in $ (# bitcoins X velocity of bitcoins)

22 Velocity as a Bitcoin pricing model Velocity as a Bitcoin Pricing Model /1/2013 4/1/2013 9/28/2013 6/30/ /27/2013 9/23/2014 6/25/2014 3/27/ /22/2014 6/20/2015 3/22/2015 $/Bitcoin Implied Price with Velocity 3 Implied Price with Velocity 5 9/18/ /17/2015 Fits the data roughly but does not capture short-term fluctuations

23 Velocity as a Bitcoin pricing model: Velocity as a Bitcoin Pricing Model 0 1/1/2011 9/28/2011 6/30/2011 4/1/ /27/2011 9/22/2012 6/24/2012 3/26/2012 $/Bitcoin Implied Price with Velocity 3 Implied Price with Velocity 5 12/21/2012 Fits the data roughly but does not capture short-term fluctuations

24 A Value for Bitcoin $/Bitcoin Velocity of Bitcoin 365 Day Total $ Value of Bitcoin Transactions (billions) Day Total $ Value: $418M: Jan 2012 $613M: Jan 2013 $3.0B: Jul 2013 $14.6B: Jan 2014 $24.8B: Jul 2014 $23B: Jan 2015 $26.6B: Jan 2016 ~15 million BTC in circulation Price Jan 2016: $428 Velocity historically 3-5 Eliminates transactions with exchanges (Blockchain.info)

25 A Value for Bitcoin $/Bitcoin Velocity of Bitcoin 365 Day Total $ Value of Bitcoin Transactions (billions) Day Total $ Value: $418M: Jan 2012 $613M: Jan 2013 $3.0B: Jul 2013 $14.6B: Jan 2014 $24.8B: Jul 2014 $23B: Jan 2015 $26.6B: Jan 2016 ~15 million BTC in circulation Price Jan 2016: $428 Velocity historically 3-5 Eliminates transactions with exchanges (Blockchain.info)

26 Critiques and Rebuttals Price changes cause trading volume to rise, on and off exchanges This model does not predict the future Goal: Translate into primitives that are easier to reason about and predict based on fundamentals Accounting for speculation Predict future transaction volume and probability of failure The Bitcoin world is not stable (esp. future velocity) Divide world into segments and analyze each segment Make predictions at the segment level But, transaction habits, apps etc. are not determined yet

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