Stories
Slash Boxes
Comments

SoylentNews is people

posted by CoolHand on Wednesday May 06 2015, @10:43AM   Printer-friendly
from the money-often-costs-too-much dept.

Thomas Kim has an interesting paper at PLOS one that analyzes virtual currencies in online games that have been voluntarily managed by individuals since 1990s to study whether the recent price patterns and transaction costs of Bitcoin represent a general characteristic of decentralized virtual currencies. Kim's conclusions:

We find that more mature game currencies have a price volatility of one-third of that of Bitcoin, at a level similar to that of small size equities or gold. The decentralized structure of Bitcoin does not seem to be the cause of the recent price instability, as game currencies are also managed by non-government entities. We observe a similar price instability from the game currencies that are launched around the time when Bitcoin gained much of its current public attention (around the year 2011). The contrast between mature and newly introduced virtual currencies indicates that the Bitcoin price may stabilize over time.

The transaction costs of virtual currencies are sometimes lower than that of real currencies. With more competition among virtual currency exchanges, the transaction costs may drop further making virtual currencies a lower cost alternative to real currency transactions. Economists agree that a properly functioning currency should include a method of transaction, a unit of account, and store value. Bitcoin may meet the criteria if it can combine its low transaction costs with more stable prices.

However, there are a few caveats for our projection. Bitcoin is the first virtual currency that is attempting to substitute the role of real currencies. Until this point, other virtual currencies, like game currencies, remain as auxiliary currencies that aid in transactions that real currencies cannot easily do, such as transactions within an online game. Game currencies currently have considerable trading volume, but their role is tied to the gaming industry. It is difficult to estimate how widespread Bitcoin will be. Also, our analysis does not justify that virtual currencies should have greater value. A large volume of Bitcoin trading in these days is speculative trading, betting on the possible appreciation of Bitcoin prices. Speculative trades are necessary to discover the reasonable exchange rates of Bitcoin, but it is unknown when the market will reach the equilibrium. As we demonstrate from the comparison of exchanges with varying degrees of competition, various regulations imposed on Bitcoin exchanges may be a dragging factor in the price discovery process.

 
This discussion has been archived. No new comments can be posted.
Display Options Threshold/Breakthrough Mark All as Read Mark All as Unread
The Fine Print: The following comments are owned by whoever posted them. We are not responsible for them in any way.
  • (Score: 0) by Anonymous Coward on Wednesday May 06 2015, @11:43AM

    by Anonymous Coward on Wednesday May 06 2015, @11:43AM (#179459)

    is somewhat like comparing a nuclear powered ice breaker to a kick scooter. A few caveats indeed!