CCBeast Special

A refreshing view of Finland Central Bank about Bitcoin
Editorial Team

Bitcoin is a matter of discussion for the economic world, and a lot of research about it has been done.

The Central Bank of Finland has issued a research discussion paper with the title: “Monopoly without a monopolist: an economic analysis of the bitcoin payment system,” written by Gur Huberman, Jacob Leshno, and Moallemi.

This discussion issues a technical oriented paper, which analyzes the technical complexities and algorithmic structure of Bitcoin. It also examines the potential of the creation of an economy entirely based on Bitcoin transactions and the safety net under it and its efficiency level.

Throughout the paper, Bitcoin serves the role of a central entity that facilitates the operations acting as a monopoly run by a protocol. Even if this procedure sounds a bit fuzzy, the logic behind the scene is an open source ecosystem controlled by a decentralized community. The advantage of such a system should be the elimination of the overwhelming market power of managing organizations.

Traditional governmental involvement via regulation and restrictions characterizes the monopoly, as we know it. An explanatory comment on the paper is based on the technical-economic strategy of quantitative easing on the distribution of the US dollar from the managing entity of Federal Reserve System when the inflation rate of US dollar is high. This type of intervention is restricted mainly by the concept of Bitcoin. Possible changes should pass under the consensus of executive counterparts, and it would consist of a total transformation of the protocol rules. This procedure is not easy as it sounds, but it demands the agreement of the technical staff to update the original database by creating a new soft or hard fork. This consensus must be, of course, long-term, unanimous and universal, making the development process sometimes inefficient. But this is the “tangible” price of decentralization.

Many central banks worldwide are expressing reluctantly or even negatively towards the concept of unregulated Bitcoin transactions. The Bank of Finland perceives the advantages of it and declares that Bitcoin is not and cannot be regulated, encouraging economists to participate and study the structure of this promising decentralized instrument. They evaluate the protocol of Bitcoin designed by such a way that it secures the peer-to-peer payments by itself. This is a real innovation that deserves the economists’ and investors’ attention and further study.

Finland Bank’s comments are more than encouraging for the future of Bitcoin, and it seems that the structure of it finds allies in the financial system.