Bitcoin, Distributed Ledgers and the Theory of the Firm

36 Pages Posted: 14 Feb 2019

See all articles by Sebastien Meunier

Sebastien Meunier

Harvard University - Business School (HBS); Ecole Polytechnique, Palaiseau

Danni Zhao-Meunier

ESCP Europe

Date Written: January 20, 2019


The Bitcoin system implements a coordination mechanism enabling peer-to-peer transactions in adversarial environments, without using a central third party. Some scholars make exuberant claims about the significance of this mechanism, called Distributed Ledger Technology. We use Incomplete Contracting models of the Theory of the Firm to dismiss those claims and analyze the benefits and limitations of Distributed Ledgers. Introducing a two-layer model, we show that they create markets whose design layer employs traditional forms of governance and whose execution layer represents an original contract enforcement mechanism, governed as a hierarchy. Permissioned and private Distributed Ledgers only provide cryptographic assurances in addition to the functions offered by traditional distributed systems. They may be implemented by electronic organizations when trusted central operators cannot be formed. Permissionless Distributed Ledgers allow users to resist censorship and expropriation, by making some tradeoffs: lower throughput, higher coordination costs, and a transfer of risks to the users.

Keywords: Bitcoin, Contract Theory, Distributed Ledger Technology, Transaction Cost, Blockchain, Distributed Ledgers

JEL Classification: L14, D23, K11, K12, L22, L86

Suggested Citation

Meunier, Sebastien and Zhao-Meunier, Danni, Bitcoin, Distributed Ledgers and the Theory of the Firm (January 20, 2019). Available at SSRN: or

Sebastien Meunier (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Ecole Polytechnique, Palaiseau ( email )

Route de Saclay
Palaiseau, 91128

Danni Zhao-Meunier

ESCP Europe ( email )

79, avenue de la République
Paris, 75011

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics