Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/266646 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
ZEW Discussion Papers No. 22-056
Publisher: 
ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung, Mannheim
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.
Subjects: 
Blockchain
Smart Contracts
Decentralization
Cryptocurrency
Commitment
Networks
JEL: 
C70
D00
D2
D4
L2
Document Type: 
Working Paper

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