Back in August 2014, I discovered that the bitcoin mining industry had the industrial structure of a natural monopoly. A natural monopoly is a market in which production is most efficient with a single producer.
This discovery came as a shock, but the implication was clear: Bitcoin could not survive in the long run. As a check, I field tested my reasoning on various people who are economically literate. None disagreed.
When I first arrived at that conclusion, bitcoin’s price was $379. Since then, its price rose to nearly £20,000 and has since fallen to a value $3,621 at the time of writing.
Does the subsequent price behavior of bitcoin mean my prediction was wrong? No. I still think that the long-run equilibrium price of bitcoin is zero. It just hasn’t bitten the dust yet.
Eulogy made by Kevin Dowd
