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

42 Pages Posted: 5 Nov 2019 Last revised: 24 Mar 2020

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: March 23, 2020

Abstract

We investigate the potentials and limits of privacy-preserving blockchain technology for information provision. In our model, heterogeneous firms can adopt a privacy-preserving blockchain or rely on traditional institutions. The blockchain leverages its peer-to-peer architecture to disseminate an aggregate signal about each firm's valuation. The firm-specific information provision depends on two factors: (i) the blockchain's fit for analyzing a given firm's data, and (ii) its reach into the economy. 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. The overall 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 (March 23, 2020). 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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