The value of decentralization using the blockchain

Arbeitspapier

Although blockchain technology and cryptocurrencies have grown in popularity over the past years, there does not seem to be a consensus if they bring any value to economic interactions. In this paper, I argue that a fundamental value the blockchain provides is commitment. I develop a model of an entrepreneur, who can create a network for her users. She can decide to retain control of the network with centralized implementation through a regular company, or surrender control over the network with a decentralized implementation through the blockchain. Users that join the network are subject to a locked-in effect. I show that a decentralized implementation of the network is (i) preferred by the entrepreneur and (ii) a Pareto improvement, if and only if the size of the locked-in effect is sufficiently large.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 22-056

Classification and Topics

• Classification: Wirtschaft ; Game Theory and Bargaining Theory: General ; Microeconomics: General
• Subject: Blockchain ; Smart Contracts ; Decentralization ; Cryptocurrency ; Commitment ; Networks

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Reuter, Marco
• Event: Veröffentlichung
• (who): ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
• (where): Mannheim
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/266646