Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/241229 
Year of Publication: 
2021
Series/Report no.: 
Bank of Canada Staff Working Paper No. 2021-6
Publisher: 
Bank of Canada, Ottawa
Abstract: 
Digital currencies store balances in anonymous electronic addresses. We analyze the tradeoffs between the safety and convenience of aggregating balances in addresses, electronic wallets and banks. In our model, agents balance the risk of theft of a large account with the cost to safeguarding a large number of passwords for many small accounts. Account custodians (banks, wallets and other payment service providers) have different objectives and trade-offs along these dimensions; we analyze the welfare effects of differing industry structures and interdependencies. In particular, we examine, the consequences of "password aggregation" programs, which, in effect, consolidate risks across accounts.
Subjects: 
Digital currencies and fintech
Financial services
Payment clearing and settlement systems
Central bank research
JEL: 
E
E4
E42
E5
E51
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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