Template-Type: ReDIF-Paper 1.0
Title: The Value of Decentralization Using the Blockchain
Author-Name: Marco Reuter
Author-Email: marco.reuter@gess.unimannheim.de
Classification-JEL: C70, D00, D2, D4, L2
Keywords: Blockchain, Smart Contracts, Decentralization, Cryptocurrency, Commitment,
Networks

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.

Note: 
Length: 47
Creation-Date: 2023-02
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp394
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2023_394