The value of decentralization using the blockchain

Marco Reuter

No 22-056, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: 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.

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)
Date: 2022
New Economics Papers: this item is included in nep-gth and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:22056

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