The Value of Decentralization Using the Blockchain

Marco Reuter ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: The popularity of blockchain technology and cryptocurrencies has grown in recent years, but there is still disagreement about their value in economic interactions. In this paper, I examine the value of a blockchain for an entrepreneur who creates a network. The entrepreneur can decide to retain control of the network with a centralized implementation through a regular company, or surrender control over the network with a decentralized implementation through the blockchain. The network’s users experience a locked-in effect. I show that a decentralized implementation of the network is both (i) preferred by the entrepreneur and (ii) a Pareto improvement, if and only if the size of the locked-in effect is sufficiently large.

Keywords: Blockchain; Smart Contracts; Decentralization; Cryptocurrency; Commitment; Networks (search for similar items in EconPapers)
JEL-codes: C70 D00 D2 D4 L2 (search for similar items in EconPapers)
Pages: 47
Date: 2023-02
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2023_394

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