The Value of Decentralization Using the Blockchain

47 Pages Posted: 15 Oct 2022 Last revised: 3 Feb 2023

See all articles by Marco Reuter

Marco Reuter

University of Mannheim, Graduate School of Economic and Social Sciences

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2022

Abstract

The popularity of blockchain technology and cryptocurrencies has grown in recent years, but there is still disagreement about their value in economic interactions. In this paper, I examine the value of a blockchain for an entrepreneur who creates a network. The entrepreneur can decide to retain control of the network with a centralized implementation through a regular company, or surrender control over the network with a decentralized implementation through the blockchain. The network’s users experience a locked-in effect. I show that a decentralized implementation of the network is both (i) preferred by the entrepreneur and (ii) a Pareto improvement, if and only if the size of the locked-in effect is sufficiently large.

Keywords: blockchain, smart contracts, decentralization, cryptocurrency, commitment, networks

Suggested Citation

Reuter, Marco, The Value of Decentralization Using the Blockchain (September 15, 2022). Available at SSRN: https://ssrn.com/abstract=4219840 or http://dx.doi.org/10.2139/ssrn.4219840

Marco Reuter (Contact Author)

University of Mannheim, Graduate School of Economic and Social Sciences ( email )

Mannheim
Germany

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