Blockchain Networks as Constitutional and Competitive Polycentric Orders
33 Pages Posted: 19 Jul 2021 Last revised: 24 Nov 2021
Date Written: July 15, 2021
Institutional economists have analyzed permissionless blockchains as a novel institutional building block for voluntary economic exchange and distributed governance, with their unique protocol features such as automated contract execution, high levels of network and process transparency, and uniquely distributed governance. But such institutional analysis needs to be complemented by polycentric analysis of how blockchains change. We characterize such change as resulting from internal sources and external sources. Internal sources include constitutional (protocol) design and collective-choice processes for updating protocols, which help coordinate network participants and users. External sources include competitive pressure from other cryptocurrency networks. By studying two leading networks, Bitcoin and Ethereum, we illustrate how conceptualizing blockchains as competing and constitutional polycentric enterprises clarifies their processes of change.
Keywords: Blockchain, Bitcoin, Governance, Cryptocurrency, Polycentricity, Constitutional governance, Competitive governance, Institutional analysis, Digital currency, Organizations
JEL Classification: B52, P48
Suggested Citation: Suggested Citation