Economic Implications of Blockchain Platforms
Abstract
In an economy with asymmetric information, the smart contract in the blockchain protocol mitigates uncertainty. Since, as a new trading platform, the blockchain triggers segmentation of market and differentiation of agents in both the sell and buy sides of the market, it recomposes the asymmetric information and generates spreads in asset price and quality between itself and a traditional platform. We show that marginal innovation and sophistication of the smart contract have non-monotonic effects on the trading value in the blockchain platform, its fundamental value, the price of cryptocurrency, and consumers' welfare. Moreover, a blockchain manager who controls the level of the innovation of the smart contract has an incentive to keep it lower than the first best when the underlying information asymmetry is not severe, leading to welfare loss for consumers.
Keywords
Cite
@article{arxiv.1802.10117,
title = {Economic Implications of Blockchain Platforms},
author = {Jun Aoyagi and Daisuke Adachi},
journal= {arXiv preprint arXiv:1802.10117},
year = {2018}
}
Comments
40 pages, with appendix of 18 pages. This project is presented in conferences including SWET at Otaru University of Commerce and WINDS at University of Pennsylvania. This paper was initially circulated under the title "Fundamental Values of Cryptocurrencies and Blockchain Technology"