Network Effects on Central Bank Digital Currencies and Blockchain protocol based ledgers

Abstract

Given the rise of Digital Currencies and Blockchain based technologies, some people want to choose whether to participate in a certain digital currency or not. This currency, which we assume is developed by the Central Bank (from now on, "the Central Bank Digital Currency" or CBDC) is based on Blockchain type architecture. As for the telegraph, users receive more utility from the use of the CBDC when the network of the participants is enough populated, due to Network Effects. However, how to implement and designed the CBDC is not obvious: users typically also use cash and deposits. Depending on the specified architecture of the CBDC, a trade off between the three instruments appears, possibly posing a threat on the existence of cash or deposits.