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Bitcoin Welfare Analysis
Bitcoin Welfare Analysis
Consumer surplus consists of looking at the positive difference between the price
someone is willing to buy an item at, and the price they actually pay. The formula
reads as follows:
Consumer surplus calculations for goods with fixed prices is relatively easy to do,
however consumer surplus in terms of Bitcoin is slightly more complex as consumers
can purchase any amount of Bitcoin they wish.
Statistics from February 2021 suggest the average person holds 0.12 Bitcoin
(18,640,000 supply divided by 152,000,000 active wallets), (Howarth, 2022). The
figure is likely lower as many other wallets like cold or offline wallets aren’t counted
and the figure has grown in one year. Therefore it is difficult to conduct consumer
surplus by calculating willingness to buy ($5000 or 0.12) divided by price ($43,000 as
of Feb 11 2022) as it would be a negative figure, and a negative consumer surplus
indicates consumers are forced to buy a good, which isn't the case.
Producer Surplus
To simplify the situation for welfare analysis, we have decided to limit the definition of
producers to only consider bitcoin miners. Besides producing new bitcoin, they also
provide the bitcoin service platform by confirming all the transactions (Huberman,
Leshno and Moallemi, 2021). The producer surplus equals all the profits made by
miners reducing the total cost.
(Blockchain.com, 2022)