Economic Simulation of Cryptocurrencies and Their Control Mechanisms

Mainelli, Michael R.; Leitch, Matthew; Demetis, Dionysios

Abstract

A cryptocurrency needs a relatively stable value if it is to fulfill the traditional functions of money and be useful as a currency. To achieve this, controls are needed within the ecosystem of the cryptocurrency. Although a simulation cannot predict future currency rates or other variables exactly, it is argued that a model that simulates a range of challenging behavior can be a useful testbed for control schemes. To illustrate and explore this idea, an agent-based economic model was used to simulate the early period of a hypothetical cryptocurrency and test two control mechanisms. The results suggest that this approach may be fruitful and that it may be important to include more than just coin minting within the control scheme. An economic simulation model is likely to be a valuable tool in developing and regulating effective cryptocurrency systems.

Citation

Mainelli, M. R., Leitch, M., & Demetis, D. (2019). Economic Simulation of Cryptocurrencies and Their Control Mechanisms. Ledger, 4, 48-67. https://doi.org/10.5915/LEDGER.2019.130

• Journal Article Type: Article
• Acceptance Date: May 8, 2019
• Publication Date: May 24, 2019
• Deposit Date: Dec 13, 2019
• Publicly Available Date: Dec 13, 2019
• Journal: Ledger
• Electronic ISSN: 2379-5980
• Publisher: University of Pittsburgh, University Library System
• Peer Reviewed: Peer Reviewed
• Volume: 4
• Pages: 48-67
• DOI: https://doi.org/10.5915/LEDGER.2019.130
• Keywords: Cryptocurrency; Economic simulation; Blockchain; Control
• Public URL: https://hull-repository.worktribe.com/output/3292104
• Publisher URL: https://ledgerjournal.org/ojs/index.php/ledger