Signals and Incentives in Blockchain Applications
Ch. 8 of James Caton (ed.,) "The Economics of Blockchain and Cryptocurrency: A Transaction Costs Revolution." 2022, Edward Elgar Publishing.
21 Pages Posted: 28 Aug 2020 Last revised: 27 Oct 2022
Date Written: October 25, 2022
Since Bitcoin’s invention in 2009, permissionless blockchain technology has gone through several waves of interest and development. While applications related to payments have advanced at breakneck speed, progress in financial and nonmonetary applications have largely failed to live up to initial excitement. This chapter considers the incentives facing network participants in light of the fundamental problem of signal verification. Doing so can account for both the successes and the failures: first, why are payments a particularly suitable problem to be solved by blockchain technology? And second, what additional problems do financial and nonmonetary applications pose?
Keywords: Cryptocurrency, Bitcoin, Blockchain, Game theory, Signaling, Information
JEL Classification: C72, E42, G23
Suggested Citation: Suggested Citation