The (Limited) Power of Blockchain Networks for Information Provision

Abstract

We investigate the potential and limits of privacy-preserving blockchain technology to rival information provision by third-party intermediaries. We provide a theoretical model in which heterogeneous firms choose between adopting a blockchain or relying on traditional institutions to inform the capital market. The blockchain's ability to generate information about a firm depends on the firm-specific data profile and all firms' endogenous adoption decisions, capturing fundamental features of the technology. Blockchains can improve the information environment because firms' adoption decisions may serve as a credible signal of firms' values, and information provision by the blockchain itself may outperform traditional institutions. However, we characterize an equilibrium in which neither of the two channels realizes its potential and information provision declines not only for individual firms but also in aggregate. We further discuss potential warning signs and implications relevant to policymakers and the broader accounting profession.

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

JEL Classification: D21, D40, M41, M48