Cryptocurrency and double spending history: transactions with zero confirmation

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5 Citations (Scopus)

Abstract

We develop a general equilibrium model of cryptocurrency to study a double spending prevention mechanism without payment confirmations. Agents trade cryptocurrency using a digital wallet, and the cryptocurrency system provides a means to verify a wallet’s double spending history. A digital wallet may obtain a good reputation for no double spending attempts based on its transaction history. If a buyer makes a payment with a digital wallet that does not have a good reputation, sellers provide goods after payment confirmations in the blockchain to prevent a double spending attack. On the other hand, sellers deliver goods immediately without payment confirmations if the payment is made through a digital wallet with a good reputation as long as the cost of losing a good reputation outweighs the short-run gain from double spending. As the time required for each confirmation increases, the utility loss from delayed delivery of goods increases so double spending incentives decrease.

Original languageEnglish
Pages (from-to)453-491
Number of pages39
JournalEconomic Theory
Volume75
Issue number2
DOIs
Publication statusPublished - 2023 Feb

Bibliographical note

Publisher Copyright:
© 2022, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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