A Unified Theory of the Blockchain Economy

Posted: 8 May 2019 Last revised: 15 Sep 2019

See all articles by Jun Aoyagi

Jun Aoyagi

HKUST, Finance Department

Date Written: April 11, 2019


In a blockchain economy, the incentive of record keepers and activity of blockchain users interact with each other through general equilibrium effects. On the one hand, users (buyers and sellers of goods) make transactions by using the blockchain protocol to mitigate informational frictions, and this activity pins down the demand for cryptocurrency and affects its price. On the other hand, record keepers maintain the blockchain system and determine how efficiently it can mitigate informational frictions among users, thereby affecting the users' activity and price of cryptocurrency. However, the price of cryptocurrency also affects the record keepers' behavior because they are motivated by a reward that is paid in cryptocurrency. These channels generate a feedback (complementarity) effect that is boiled down to a fixed point problem. We show that multiple equilibria can arise in which collective deviation of miners (e.g., fork) can deteriorate the blockchain's efficiency and consumers' welfare.

Keywords: blockchain, smart contract, cryptocurrency, asymmetric information, FinTech, market structure, two-sided markets

JEL Classification: D47, D51, D53, G10, G20, L10

Suggested Citation

Aoyagi, Jun, A Unified Theory of the Blockchain Economy (April 11, 2019). Available at SSRN: https://ssrn.com/abstract=3370013 or http://dx.doi.org/10.2139/ssrn.3370013

Jun Aoyagi (Contact Author)

HKUST, Finance Department ( email )

United States

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