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07.16.19

Costs and benefits of Bitcoin's decentralized decision structure discussed by Cleveland Fed researchers

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With the introduction of bitcoin, the world got not just a new currency, it also got evidence that a decentralized control structure could work in practice for institutional governance. Cleveland Fed researchers Ben R. Craig and Joseph Kachovec discuss the advantages and disadvantages of centralized and decentralized control structures by examining the features of the bitcoin payment system.

"We show that while the decentralized nature of the Bitcoin network "democratizes" payments, it is not obvious that the approach increases the equity or efficiency of markets or that the costs of the decentralized control structure won't outweigh the benefits in the long run," say Craig and Kachovec. "Centralized decision making comes with both costs, such as arbitrary decisions, and benefits, such as being able to realize fast decisions in a changing environment."

The rise of Bitcoin competitors and additional cryptocurrencies shows that demand exists in the marketplace for these products. However, questions remain about how viable a decentralized platform can be long term.

Read more: Bitcoin's Decentralized Decision Structure


Check out other recent economic research from the Cleveland Fed:

The Flattening of the Phillips Curve: Policy Implications Depend on the Cause

Behavior of a New Median PCE Measure: A Tale of Tails

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