Blockchain Disruption and Smart Contracts

52 Pages Posted: 12 Mar 2018 Last revised: 1 Sep 2024

See all articles by Lin William Cong

Lin William Cong

Cornell University - Samuel Curtis Johnson Graduate School of Management; Cornell SC Johnson College of Business; National Bureau of Economic Research (NBER)

Zhiguo He

Stanford University - Knight Management Center

Multiple version iconThere are 2 versions of this paper

Date Written: March 2018

Abstract

Blockchain technology provides decentralized consensus and potentially enlarges the contracting space using smart contracts with tamper-proofness and algorithmic executions. Meanwhile, generating decentralized consensus entails distributing information which necessarily alters the informational environment. We analyze how decentralization affects consensus effectiveness, and how the quintessential features of blockchain reshape industrial organization and the landscape of competition. Smart contracts can mitigate informational asymmetry and improve welfare and consumer surplus through enhanced entry and competition, yet the irreducible distribution of information during consensus generation may encourage greater collusion. In general, blockchains can sustain market equilibria with a wider range of economic outcomes. We further discuss anti-trust policy implications targeted to blockchain applications, such as separating consensus record-keepers from users.

Suggested Citation

Cong, Lin and He, Zhiguo, Blockchain Disruption and Smart Contracts (March 2018). NBER Working Paper No. w24399, Available at SSRN: https://ssrn.com/abstract=3138382

Lin Cong (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.com/

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zhiguo He

Stanford University - Knight Management Center ( email )

655 Knight Way
Stanford, CA 94305-7298
United States

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