Cryptocurrency and double spending history: transactions with zero confirmation

Kee Youn Kang

doi:10.1007/s00199-021-01411-3

Cryptocurrency and double spending history: transactions with zero confirmation

Kee Youn Kang

Department of Business Administration

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

Abstract

We develop a general equilibrium model of cryptocurrency to study a double spending prevention mechanism without payment confirmations. Agents trade cryptocurrency using a digital wallet, and the cryptocurrency system provides a means to verify a wallet’s double spending history. A digital wallet may obtain a good reputation for no double spending attempts based on its transaction history. If a buyer makes a payment with a digital wallet that does not have a good reputation, sellers provide goods after payment confirmations in the blockchain to prevent a double spending attack. On the other hand, sellers deliver goods immediately without payment confirmations if the payment is made through a digital wallet with a good reputation as long as the cost of losing a good reputation outweighs the short-run gain from double spending. As the time required for each confirmation increases, the utility loss from delayed delivery of goods increases so double spending incentives decrease.

Original language	English
Pages (from-to)	453-491
Number of pages	39
Journal	Economic Theory
Volume	75
Issue number	2
DOIs	https://doi.org/10.1007/s00199-021-01411-3
Publication status	Published - 2023 Feb

Bibliographical note

Funding Information:
I have benefited from discussion with Yongsung Chang, Jonathan Chiu, Inkee Jang, Young Sik Kim, Seungduck Lee, Emiliano Pagnotta, Harald Uhlig, Christopher Waller, Stephen Williamson, Randall Wright, and Menghan Xu as well as with all seminar participants at 2019 Summer Workshop on Money, Banking, Payments and Finance at the Bank of Canada, 2019 Workshop of the Australasian Macroeconomic Society, Korea University, Seoul National University, Yonsei University, and Xiamen University. This work was supported by New Scholars Grant Program from the Korean Securities Association and Mirae Asset in 2019 and (in part) by the Yonsei University Research Fund of 2019-22-0117.

Publisher Copyright:
© 2022, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.

All Science Journal Classification (ASJC) codes

Economics and Econometrics

Access to Document

10.1007/s00199-021-01411-3

Cite this

@article{6253f28a76aa4e19906d7089ea1f0ed7,

title = "Cryptocurrency and double spending history: transactions with zero confirmation",

abstract = "We develop a general equilibrium model of cryptocurrency to study a double spending prevention mechanism without payment confirmations. Agents trade cryptocurrency using a digital wallet, and the cryptocurrency system provides a means to verify a wallet{\textquoteright}s double spending history. A digital wallet may obtain a good reputation for no double spending attempts based on its transaction history. If a buyer makes a payment with a digital wallet that does not have a good reputation, sellers provide goods after payment confirmations in the blockchain to prevent a double spending attack. On the other hand, sellers deliver goods immediately without payment confirmations if the payment is made through a digital wallet with a good reputation as long as the cost of losing a good reputation outweighs the short-run gain from double spending. As the time required for each confirmation increases, the utility loss from delayed delivery of goods increases so double spending incentives decrease.",

author = "Kang, {Kee Youn}",

note = "Funding Information: I have benefited from discussion with Yongsung Chang, Jonathan Chiu, Inkee Jang, Young Sik Kim, Seungduck Lee, Emiliano Pagnotta, Harald Uhlig, Christopher Waller, Stephen Williamson, Randall Wright, and Menghan Xu as well as with all seminar participants at 2019 Summer Workshop on Money, Banking, Payments and Finance at the Bank of Canada, 2019 Workshop of the Australasian Macroeconomic Society, Korea University, Seoul National University, Yonsei University, and Xiamen University. This work was supported by New Scholars Grant Program from the Korean Securities Association and Mirae Asset in 2019 and (in part) by the Yonsei University Research Fund of 2019-22-0117. Publisher Copyright: {\textcopyright} 2022, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.",

year = "2023",

month = feb,

doi = "10.1007/s00199-021-01411-3",

language = "English",

volume = "75",

pages = "453--491",

journal = "Economic Theory",

issn = "0938-2259",

publisher = "Springer New York",

number = "2",

}

TY - JOUR

T1 - Cryptocurrency and double spending history

T2 - transactions with zero confirmation

AU - Kang, Kee Youn

N1 - Funding Information: I have benefited from discussion with Yongsung Chang, Jonathan Chiu, Inkee Jang, Young Sik Kim, Seungduck Lee, Emiliano Pagnotta, Harald Uhlig, Christopher Waller, Stephen Williamson, Randall Wright, and Menghan Xu as well as with all seminar participants at 2019 Summer Workshop on Money, Banking, Payments and Finance at the Bank of Canada, 2019 Workshop of the Australasian Macroeconomic Society, Korea University, Seoul National University, Yonsei University, and Xiamen University. This work was supported by New Scholars Grant Program from the Korean Securities Association and Mirae Asset in 2019 and (in part) by the Yonsei University Research Fund of 2019-22-0117. Publisher Copyright: © 2022, The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.

PY - 2023/2

Y1 - 2023/2

N2 - We develop a general equilibrium model of cryptocurrency to study a double spending prevention mechanism without payment confirmations. Agents trade cryptocurrency using a digital wallet, and the cryptocurrency system provides a means to verify a wallet’s double spending history. A digital wallet may obtain a good reputation for no double spending attempts based on its transaction history. If a buyer makes a payment with a digital wallet that does not have a good reputation, sellers provide goods after payment confirmations in the blockchain to prevent a double spending attack. On the other hand, sellers deliver goods immediately without payment confirmations if the payment is made through a digital wallet with a good reputation as long as the cost of losing a good reputation outweighs the short-run gain from double spending. As the time required for each confirmation increases, the utility loss from delayed delivery of goods increases so double spending incentives decrease.

AB - We develop a general equilibrium model of cryptocurrency to study a double spending prevention mechanism without payment confirmations. Agents trade cryptocurrency using a digital wallet, and the cryptocurrency system provides a means to verify a wallet’s double spending history. A digital wallet may obtain a good reputation for no double spending attempts based on its transaction history. If a buyer makes a payment with a digital wallet that does not have a good reputation, sellers provide goods after payment confirmations in the blockchain to prevent a double spending attack. On the other hand, sellers deliver goods immediately without payment confirmations if the payment is made through a digital wallet with a good reputation as long as the cost of losing a good reputation outweighs the short-run gain from double spending. As the time required for each confirmation increases, the utility loss from delayed delivery of goods increases so double spending incentives decrease.

UR - http://www.scopus.com/inward/record.url?scp=85123238274&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85123238274&partnerID=8YFLogxK

U2 - 10.1007/s00199-021-01411-3

DO - 10.1007/s00199-021-01411-3

M3 - Article

AN - SCOPUS:85123238274

SN - 0938-2259

VL - 75

SP - 453

EP - 491

JO - Economic Theory

JF - Economic Theory

IS - 2

ER -

Cryptocurrency and double spending history: transactions with zero confirmation

Abstract

Bibliographical note

All Science Journal Classification (ASJC) codes

Access to Document

Other files and links

Fingerprint

Cite this