No Trade in a Blockchain
13 Pages Posted: 18 May 2020 Last revised: 16 Sep 2022
Date Written: September 15, 2022
Abstract
A trade is an agreement to buy and sell a security that pays according to some state of nature. In a decentralised and anonymous environment, such as a blockchain, a trade is settled when the security’s value is verified by an oracle, an intermediary who knows the state of nature. However, since the identity of traders in a blockchain is hidden, an oracle can impersonate a trader, by participating in a trade only when he knows that the outcome will be favourable. If other traders know that this is possible, they might be unwilling to participate in any trade that is offered. In this paper, we examine conditions on the private information of traders which are necessary and sufficient for a no trade result.
Keywords: Blockchain, cryptocurrencies, oracles, no trade, agreeing to disagree
JEL Classification: D82, D83, D84, G14, G41
Suggested Citation: Suggested Citation