Is Bitcoin a Decentralized Payment Mechanism?

Abstract

We make a distinction between centralized, decentralized, and distributed payment mechanisms. A centralized payment mechanism processes a transaction using a trusted third party. A decentralized payment mechanism processes a transaction between the parties to the transaction. A distributed payment mechanism relies on the network of users to process a transaction on a shared ledger. We maintain that bitcoin is neither a centralized nor decentralized payment mechanism. It is, instead, a distributed payment mechanism. We then consider decentralized and centralized aspects of the broader bitcoin payment space.

Keywords: bitcoin, centralized, consensus decentralized, distributed, exchange, governance, payments, e-wallet

JEL Classification: E40, E41, E42