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Table 5.4: Welfare Comparison between Retail and Large-value Systems avg transaction size annual volume optimal μ − 1 optimal τ confirmation lag welfare loss mining cost (per year) equivalent fee (per transfer) Retail Payments (US Debit cards) $38.29 59539 millions 0.038% 0% 2 mins 0.00052 % $4.33 millions $0.0002 Large Value Payments (Fedwire) $6,552,236 135 millions 0.53% 0% 12 mins 0.0060% $22.10 billions $392.56 chose ε so that the average size of transactions equals the one observed in these payments systems, $38.29 and $6.5mn respectively. This is driven by data limitations. Double-spending incentives however increase with transaction size and, hence, we assume that the largest transactions in the debit card and Fedwire systems are 100 times and 5 times the average trade size. Table 5.4 confirms that the welfare losses in a retail payment system are much smaller than in a large-value one. In terms of the consumption equivalent measure, the welfare loss in a larger-value system is 0.006% of consumption, which is about 10 times larger than that in a retail system. A large-value system incurs a huge mining cost of 22 bn USD, which is over 5000 times of that in the retail system. In the last row, we also derive the required transaction fee of a cash system (at 2% inflation) so that people are indifferent between such system and the cryptocurrency. When a cryptocurrency is used for retail transactions, the equivalent transaction fee is a negligible 0.02 cents per transfer. For the large-value system, the corresponding fee becomes a very large $392. The basic intuition follows directly from the double spending constraint we have derived in our theoretical model. As the transaction size is smaller in the retail system, the incentives to double spend are also smaller. Furthermore, mining is a public good so that the rewards from money growth can support a large transaction volume. This implies that confirmation lags can be shorter and one needs to induce less mining effort to dwarf double spending. Consequently, money growth can also be smaller in a retail system, making a cryptocurrency system less costly due to inflation. 33PDF Image | The Economics of Cryptocurrencies Bitcoin and Beyond
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