Bank of Canada & NYU
Information about this author at RePEc
NBER Working Papers and Publications
|April 2015||Some Economics of Private Digital Currency|
with Joshua S. Gans
in Economic Analysis of the Digital Economy, Avi Goldfarb, Shane M. Greenstein, and Catherine E. Tucker, editors
This paper reviews some recent developments in digital currency, focusing on platform-sponsored currencies such as Facebook Credits. We develop a model of platform management in which platform currency offers "enhancements" to users who spend time on the platform. Users allocate time between earning money outside of the platform and using the platform. The platform can equip its currency in different attributes and limitations, with the goal of maximizing profit. We show that limiting functionality of currency (e.g., prohibiting transferability) may increase usage on the platform. But depending on the source of the revenue, different attributes of the currency are optimal. We also find that it will not likely be profitable for such currencies to expand to become fully functional competitor...