Blockchain technology and startup financing: A transaction cost economics perspective

Saurabh Ahluwalia, Raj V. Mahto and Maribel Guerrero

Technological Forecasting and Social Change, 2020, vol. 151, issue C

Abstract: Cryptocurrencies (e.g., Bitcoin, EOS, Etherum, Litecoin, and others) are disrupting the traditional banking and financial systems. The cryptocurrencies are based on a set of technologies commonly referred to as blockchain technology. The potential effect of blockchain technology on institutional economics is profound. Already, blockchain technology-based applications in supply chain management, marketing, and finance are decentralizing and streamlining vital institutional functions. In this paper, we examine the economics of blockchain technologies as it pertains to transaction costs in startup financing. We draw upon the theory of transaction cost economics and the transactional nature of blockchain technology to propose a model to demonstrate how and why blockchain technology based applications are effective. We then apply the model to demonstrate how blockchain technology can be used to overcome many problems inherent in startup financing. For example, information asymmetry and transaction costs involved with matching an entrepreneur with an investor and the terms of the financing deal are some of the fundamental issues in entrepreneurial financing. We explain how a financing system based on blockchain technology can ameliorate the problems and lead to a more effective and decentralized entrepreneurial financing process.

Keywords: Blockchain technology; Institutional economics; Transactional costs; Startup financing; Entrepreneurship; Venture capital (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (54)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:tefoso:v:151:y:2020:i:c:s0040162519302586

DOI: 10.1016/j.techfore.2019.119854

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