The Value of Decentralization Using the Blockchain: An Economic Analysis
Although blockchain technology and cryptocurrencies have grown in popularity, no consensus has emerged about the value they bring, if any, to economic interactions. In this presentation, Marco Reuter (economics, Mannheim) argues that a fundamental value the blockchain provides is commitment. He develops a game theoretic model of an entrepreneur who can create a network for users. The entrepreneur can decide to retain control of the network with centralized implementation through a regular company, or surrender control to users with a decentralized implementation through the blockchain. Users that join the network are subject to a locked-in effect. Marco shows that a decentralized implementation of the network is both preferred by the entrepreneur and a Pareto improvement if and only if the size of the locked-in effect is sufficiently large.
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