Can You Trust the Blockchain? The (Limited) Power of Peer-to-Peer Networks for Information Provision

51 Pages Posted: 5 Nov 2019

See all articles by Benedikt Franke

Benedikt Franke

SKEMA Business School

Qi Gao

University of Mannheim - Accounting and Taxation; University of Mannheim Graduate School of Economic and Social Sciences, Students

André Stenzel

University of Mannheim and MaCCI

Date Written: October 25, 2019

Abstract

We theoretically investigate the potentials and limits of privacy-preserving blockchain technology for the generation of information. In our model, heterogeneous firms can rely on traditional institutions or adopt a blockchain to inform the capital market. The blockchain leverages its peer-to-peer structure and disseminates aggregate information while ensuring the privacy of individual data entries. Within this system, firm-specific information provision depends on two critical factors: (i) the blockchain's fit for analyzing a given firm's data, and (ii) its reach into the economy as provided by the proportion of firms adopting the blockchain in equilibrium. The technology can improve information provision in two ways. The adoption decision itself may serve as a credible signal of a firm's valuation, and the blockchain may generate more information than traditional institutions when its reach is sufficiently high. However, we characterize an equilibrium in which high-value and low-value firms are present both inside and outside the blockchain, which limits both channels' ability to generate information. We show that the information provision can even fall below the benchmark case in which blockchain technology is not available.

Keywords: Blockchain, Disclosure, Information provision, Peer-to-peer, Technology adoption

JEL Classification: D21, D40, M41, M48

Suggested Citation

Franke, Benedikt and Gao, Qi and Stenzel, André, Can You Trust the Blockchain? The (Limited) Power of Peer-to-Peer Networks for Information Provision (October 25, 2019). Available at SSRN: https://ssrn.com/abstract=3475383 or http://dx.doi.org/10.2139/ssrn.3475383

Benedikt Franke (Contact Author)

SKEMA Business School ( email )

Lille
France

Qi Gao

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

University of Mannheim Graduate School of Economic and Social Sciences, Students ( email )

Mannheim
Germany

André Stenzel

University of Mannheim and MaCCI ( email )

Department of Economics, University of Mannheim
L7, 3-5
Mannheim, 68131
Germany

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