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This implies that a cryptocurrency works best when the volume of transactions is larger relative to the individual transaction size. As a result, a cryptocurrency tends to be much more efficient for conducting retail payments. The transaction fee measures in the last row of the table allow us to also evaluate whether cryp- tocurrencies can be a viable alternative to currenct payment systems. The interchange fee in the current debit card system is about 23 cents per transfer, while the service fee for Fedwire is 82 cents per transfer.29 This suggests that a well-functioning cryptocurrency system can potentially chal- lenge current debit card systems by offering users a competitive transaction fee with large enough transaction volumes. This comparison – especially for retail payments systems – needs to be interpreted with caution. First, we do not consider certain private costs of running a cryptocurrency system. Examples are costs for data storage, network communication and software such as wallets to operate the system. Second, while the mining cost is a deadweight loss to society, part of the fees collected by retail and large value payment systems are profits earned by the providers so that operating costs tend to be lower than reflected in those fees. Finally, the above comparison does not take into account an important technical limitation of cryptocurrencies. Bitcoin and other implementations of cryptocurrencies face tight limits to their scalability. Unless one can address this issue by changing limits on block size and latency due to network speed, such systems will not be able to handle a large volume of transactions as required by modern retail payment systems. 6 Conclusion Distributed record-keeping with a blockchain based on consensus through PoW is an intriguing concept. The economics of this technology that underlies most cryptocurrencies are driven by the individual incentives to double-spend and the costs associated with reining in these incentives. These costs are private in the form of settlement delay and social in the form of mining which is a public good. Consequently, as the scale of a cryptocurrency increases, it becomes more efficient. This explains why a double-spending proof equilibrium exists only when the user pool is sufficiently large, and why a cryptocurrency works best when the volume of transactions is large relative to 29 For the detail, see https://www.federalreserve.gov/paymentsystems/regii-average-interchange-fee.htm and https://www.frbservices.org/servicefees/fedwire funds services 2017.html. 34PDF Image | The Economics of Cryptocurrencies Bitcoin and Beyond
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