Summary of Cryptocurrencies, Network Effects, and Switching Costs

Mercatus Center,

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Cryptocurrencies, Network Effects, and Switching Costs summary
Will you soon pay for your morning coffee with bitcoins?


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When a former chairman of the Federal Reserve writes that virtual currencies “may hold long-term promise,” it’s time to think seriously about Bitcoin. While it’s difficult to imagine buying a cup of coffee using a currency that can fluctuate wildly in the course of a day, a time may come when bitcoins become a more useful measure of value and better suited to daily use. getAbstract highly recommends professor William J. Luther’s thoughtful exploration of the utility and adoption of “cryptocurrencies.” Despite some mathematical abstractions, his study offers both a quick introduction to Bitcoin and a learned assessment of its prospects for acceptance.

In this summary, you will learn

  • What “cryptocurrencies” are and how they work
  • How and why users accept new currencies
  • What the future holds for a broad adoption of Bitcoin


“Cryptocurrencies” like Bitcoin are fiat money that use cryptography to ensure their integrity. Unlike more well-known currencies such as the dollar, yen or euro, cryptocurrencies don’t have the backing of governments and central banks but rely on the security of underlying software algorithms to prevent...
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About the Author

William J. Luther is an assistant professor of economics at Kenyon College in Ohio.

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