Will Bitcoin become the new Dollar? Understanding the fundamental factors of cryptocurrencies’ prevalence.

Bitcoin has been one of the most significant hypes of the past twelve months. Bitcoin is a digital currency or cryptocurrency, which is essentially a peer-to-peer (P2P) payment network without the existence of any physical forms of money. Its explosive increase in value together with its extreme volatility has made it one of the most trending topics in newspapers around the world. The Bitcoin community has been active in underlining the potential advantages of Bitcoin over traditional forms of currency: it is completely decentralized and deregulated, it is magnitudes harder to be forged, it is highly transparent, and payments made through the system are subject to very low transaction costs. Despite the soaring popularity of Bitcoin, there exists an increasing need for knowledge, especially with respect to the financial and monetary economics foundations. This research proposal will bring together expertise in financial monetary economics and solid understanding of the technical underpinnings of cryptocurrencies. Our grand objective is to investigate the fundamental factors that determine whether and how digital currencies such as Bitcoin could eventually become a prevalent monetary system. Hereto, we will emphasize on studying the inflationary nature, developing strategies to build cryptocurrency ecosystems with banking functionality, proposing parameterization of viable cryptocurrency-based monetary systems, and outlining implications for policy makers and regulators.