Abstract
Bitcoin is an increasingly popular payment instrument and currency on the Internet. An important characteristic of the bitcoin is that it is a self-regulating system; there is no centrally controlled governing system such a central bank, which is the case for traditional currencies as the euro or the dollar. The Bitcoin is a rather unstable currency, which can be seen by the fluctuations in the value of bitcoins over time. Moreover, it is also unclear whether the bitcoin system itself is sustainable on the long term. To reach long term sustainability, it is required that the actors running the bitcoin system have a net positive cash flow, similar to banks who also should be profitable. To assess sustainability, we analyze the actors involved in the Bitcoin system as well as the value flows between these actors using the e3value methodology. Then we quantify these value flows for the period January 2012 – December 2015. Since definite figures about the size of the bitcoin mining industry are lacking, we reverse engineer the expenses and revenues of the participating actors by deducting these from the bitcoin value, computing power of the network and available mining hardware specifications. Our analysis shows that the sustainability of Bitcoin system heavily depends on the miners, who are actors generating bitcoins and clearing transactions. Our findings are the following: The improvements in hardware, as operated by the miners, have not kept pace with the decreasing value of bitcoins, so that an average total daily profit of $ 206,352.47 of the miners in 2013 dropped to an average daily loss of $ 435,983.00 in 2015. Additionally, at the end of our time period, the marginal profit of mining a bitcoin has converged to the marginal cost of production, as economic theory predicts. Before that, miners have achieved high profits mainly in the years 2012 and 2013.
Highlights
Since bitcoin emerged in 2009, individuals and companies invested billions of dollars in the digital currency and the underlying blockchain technology
The bitcoin firstly is a payment instrument, it serves as an incentive given to blockchain providers, referred to as ‘miners’, who provide the computing power needed for clearing transactions in the bitcoin network (Nakamoto 2008)
To understand the bitcoin ecosystem, we develop an e3value business model describing the most important value streams in the bitcoin network based on the body of literature about the bitcoin available
Summary
Since bitcoin emerged in 2009, individuals and companies invested billions of dollars in the digital currency and the underlying blockchain technology. The bitcoin is an unregulated digital peer-to-peer currency with a finite supply of 21 million units that is not backed by debt obligations and governments (Grinberg 2012) and does not need third parties such as banks. The bitcoin firstly is a payment instrument, it serves as an incentive given to blockchain providers, referred to as ‘miners’, who provide the computing power needed for clearing transactions in the bitcoin network (Nakamoto 2008). The bitcoin currency provides a certain degree of anonymity, has no issuance expenditure and charges none to low transaction fees (Nakamoto 2008). Current uses for bitcoin are payments to (online) merchants, sending remittances abroad and speculation (Goldman Sachs 2014; Bouoiyour and Selmi 2015)
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