Blockchain Disruption and Smart Contracts

Lin Cong and Zhiguo He

No 24399, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Blockchain technology provides decentralized consensus and potentially enlarges the contracting space using smart contracts with tamper-proofness and algorithmic executions. Meanwhile, generating decentralized consensus entails distributing information which necessarily alters the informational environment. We analyze how decentralization affects consensus effectiveness, and how the quintessential features of blockchain reshape industrial organization and the landscape of competition. Smart contracts can mitigate informational asymmetry and improve welfare and consumer surplus through enhanced entry and competition, yet the irreducible distribution of information during consensus generation may encourage greater collusion. In general, blockchains can sustain market equilibria with a wider range of economic outcomes. We further discuss anti-trust policy implications targeted to blockchain applications, such as separating consensus record-keepers from users.

JEL-codes: D4 D8 G2 L13 L4 O3 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-com, nep-cta, nep-ict, nep-mic and nep-pay
Note: AP CF IO LE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

Published as Lin William Cong & Zhiguo He, 2019. "Blockchain Disruption and Smart Contracts," The Review of Financial Studies, vol 32(5), pages 1754-1797.

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Journal Article: Blockchain Disruption and Smart Contracts (2019)
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