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New digital currency captures research interests of student and professor

Economics Professor Kevin McIntyre with senior Kristine Harjes.
July 23, 2013

From day one, Kristine Harjes has been fascinated with Bitcoin – the digital currency that is the topic of her cutting-edge research with Economics professor Kevin McIntyre.

“It’s the online equivalent of a bag of cash,” says Harjes, a senior with an Economics-Math dual major in McDaniel’s Honors Program.

Bitcoin is bought and sold, peer-to-peer, on the Internet and operates with no central authority – instead those who own Bitcoins manage transactions. Dubbed crypto-currency, it is untraceable and as such has been used in purchases of illegal drugs as well as everything from cars to deli sandwiches – depending on whether the business accepts the currency or not.

Still, Bitcoin is emerging as a new market with extremely volatile exchange rates. A Bitcoin was worth about 5 cents initially in 2009, $200 in April 2013 and $88 on July 3, 2013. As a new market, it captured McIntyre’s attention.

“It is a new way to think about currency that is without precedent in the past hundred years,” McIntyre says, explaining that in colonial times and even in the 1800s private money was in use in the U.S. “Think of it as private money for the digital age.”

Although transactions are anonymous, a complete data set is easily found on the Internet. Harjes, from Rumson, N.J., is studying the number, frequency, times and volume of transactions.

This is her second summer of research. Last summer she collaborated with Computer Science professor Pavel Naumov on game theory research, co-authoring three mathematical research papers, one of which was published in the Conference Proceedings of the First International Workshop on Strategic Reasoning in Rome in the spring of 2013, and a second will be published in the fall in the Conference Proceedings of the Fourth International Workshop on Logic, Rationality, and Interaction.

Together, Harjes and McIntyre are researching whether Bitcoin behaves like other currency or is it so new – “so wild and wooly that it is off the map,” McIntyre says. Because of its nature, it can’t be bought and sold quickly. Once purchased, it takes 10 hours or more to download the transaction history that comes with the purchase. Therefore this investment must take its chances on what happens during an entire day before being sold, and the student-professor team is looking at the effect this has on the market.

Research so far has focused on the computer science side of the currency – nothing that McIntyre has been able to find is published about the economics aspects of the currency.

The study is a perfect fit for Harjes whose interests are analysis and theory. In addition to her dual major, she’s minoring in Business Administration and Art but isn’t sure yet how she’ll apply this to a career.

“I like to think the job I am going to end up in hasn’t been invented yet,” she says.

 
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