Blockchain Disruption and Smart Contracts

Lin Cong and Zhiguo He ()

The Review of Financial Studies, 2019, vol. 32, issue 5, 1754-1797

Abstract: Blockchain technology provides decentralized consensus and potentially enlarges the contracting space through smart contracts. Meanwhile, generating decentralized consensus entails distributing information that necessarily alters the informational environment. We analyze how decentralization relates to consensus quality and how the quintessential features of blockchain remold the landscape of competition. Smart contracts can mitigate informational asymmetry and improve welfare and consumer surplus through enhanced entry and competition, yet distributing information during consensus generation may encourage greater collusion. In general, blockchains sustain market equilibria with a wider range of economic outcomes. We further discuss the implications for antitrust policies targeted at blockchain applications.Received May 31, 2017; editorial decision May 29, 2018 by Editor Itay Goldstein.

Date: 2019
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Working Paper: Blockchain Disruption and Smart Contracts (2018)
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