區(qū)塊鏈的一些簡單經濟學

NBERWORKINGPAPERSERIES

SOMESIMPLEECONOMICSOFTHEBLOCKCHAIN

ChristianCataliniJoshuaS.Gans

WorkingPaper22952

/papers/w22952

NATIONALBUREAUOFECONOMICRESEARCH

1050MassachusettsAvenue

Cambridge,MA02138

December2016,RevisedJune2019

WearethankfultoAlRoth,MuneebAli,NavalRavikant,NicolaGreco,TimSimcoe,ScottStern,CatherineTucker,andJaneWuforhelpfuldiscussions.TheviewsexpressedhereinarethoseoftheauthorsanddonotnecessarilyreflecttheviewsoftheNationalBureauofEconomicResearch.

NBERworkingpapersarecirculatedfordiscussionandcommentpurposes.Theyhavenotbeenpeer-reviewedorbeensubjecttothereviewbytheNBERBoardofDirectorsthataccompaniesofficialNBERpublications.

?2016byChristianCataliniandJoshuaS.Gans.Allrightsreserved.Shortsectionsoftext,nottoexceedtwoparagraphs,maybequotedwithoutexplicitpermissionprovidedthatfullcredit,including?notice,isgiventothesource.

SomeSimpleEconomicsoftheBlockchainChristianCataliniandJoshuaS.GansNBERWorkingPaperNo.22952December2016,RevisedJune2019

JELNo.D4,D47,O16,O3,O31,O32,O33,O34

ABSTRACT

Webuildoneconomictheorytodiscusshowblockchaintechnologycanshapeinnovationandcompetitionindigitalplatforms.Weidentifytwokeycostsaffectedbythetechnology:thecostofverificationandthecostofnetworking.Thecostofverificationrelatestotheabilitytocheaplyverifystate,includinginformationaboutpasttransactionsandtheirattributes,andcurrentownershipinanativedigitalasset.Thecostofnetworking,instead,relatestotheabilitytobootstrapandoperateamarketplacewithoutassigningcontroltoacentralizedintermediary.Thisisachievedbycombiningtheabilitytocheaplyverifystatewitheconomicincentivestargetedatrewardingstatetransitionsthatareparticularlyvaluablefromanetworkperspective,suchasthecontributionoftheresourcesneededtooperate,scale,andsecureadecentralizednetwork.Theresultingdigitalmarketplacesallowparticipantstomakejointinvestmentsinsharedinfrastructureanddigitalpublicutilitieswithoutassigningmarketpowertoaplatformoperator,andarecharacterizedbyincreasedcompetition,lowerbarrierstoentry,andalowerprivacyrisk.Becauseoftheirdecentralizednature,theyalsointroducenewtypesofinefficienciesandgovernancechallenges.

ChristianCatalini

MITSloanSchoolofManagement100MainStreet,E62-480Cambridge,MA02142

andNBER

catalini@

JoshuaS.Gans

RotmanSchoolofManagementUniversityofToronto

105St.GeorgeStreetTorontoONM5S3E6CANADA

andNBER

joshua.gans@

PAGE

10

Introduction

InOctober2008,afewweeksaftertheEmergencyEconomicStabilizationActrescuedtheU.S.financialsystemfromcollapse,SatoshiNakamoto(Nakamoto2008)introducedacryptographymailinglisttoBitcoin,apeer-to-peerelectroniccashsystem“basedoncrypto-graphicproofinsteadoftrust,allowinganytwowillingpartiestotransactdirectlywitheachotherwithouttheneedforatrustedthirdparty.”WithBitcoin,forthefirsttime,valuecouldbereliablytransferredbetweentwodistant,untrustingpartieswithouttheneedofanintermediary.Throughaclevercombinationofcryptographyandgametheory,theBitcoin‘blockchain’–adistributed,publictransactionledger–couldbeusedbyanyparticipantinthenetworktocheaplyverifyandsettletransactionsinthecryptocurrency.Thankstorulesdesignedtoincentivizethepropagationofnewlegitimatetransactions,toreconcileconflictinginformation,andtoultimatelyagreeatregularintervalsaboutthetruestateofasharedledger(a‘blockchain’)1inanenvironmentwherenotallparticipatingagentscanbetrusted,Bitcoinwasalsothefirstplatform,atscale,torelyondecentralized,internet-level‘consensus’foritsoperations:Withoutinvolvingacentralclearinghouseormarketmaker,theplatformwasabletosettlethetransferofpropertyrightsintheunderlyingdigitaltoken(bitcoin)bysimplycombiningasharedledgerwithanincentivesystemdesignedtosecurelymaintainit.

Fromaneconomicsperspective,thisnewmarketdesignsolutionprovidessomeoftheadvantagesofacentralizeddigitalplatform(e.g.theabilityofparticipantstorelyonasharednetworkandbenefitfromnetworkeffects)withoutsomeoftheconsequencesthepresenceofanintermediarymayintroducesuchasincreasedmarketpower,abilitytorenegeoncommitmentstoecosystemparticipants,controloverparticipants’data,presenceofasinglepointoffailure,etc.Asaresult,relativetoexistingfinancialnetworks,acryptocurrency

1SeeAppendixformoredetails.

suchasBitcoinmaybeabletoofferlowerbarrierstoentryfornewserviceprovidersandapplicationdevelopers,andanalternativemonetarypolicyforindividualsthatdonotliveincountrieswithtrustworthyinstitutions:KeycommitmentsencodedintheBitcoinprotocolareitsfixedsupply,predeterminedreleaseschedule,andthefactthatrulescanonlybechangedwithsupportfromamajorityofparticipants.Whiletheresultingecosystemmaynotofferanimprovementforindividualslivingincountrieswithreliableandindependentcentralbanks,itmayrepresentanoptionincountriesthatareunabletomaintaintheirmonetarypolicycommitments.Ofcourse,theopenand“permissionless”natureoftheBitcoinnetwork,andtheinabilitytoadjustitssupplyalsointroducenewchallenges,asthenetworkcanbeusedforillegalactivity,andthevalueofthecryptocurrencycanfluctuatewildlywithchangesinexpectationsaboutitsfuturesuccess,limitingitsuseasaneffectivemediumofexchange.

Inthepaper,werelyoneconomictheorytoexplainhowtwokeycostsaffectedbyblockchaintechnology–thecostofverificationofstate,andthecostofnetworking–changethetypesoftransactionsthatcanbesupportedintheeconomy.Thesecostshaveimplicationsforthedesignandefficiencyofdigitalplatforms,andopenopportunitiesfornewapproachestodataownership,privacy,andlicensing;monetizationofdigitalcontent;auctionsandreputationsystems.

Whilethereductioninthecostofverificationhaseconomicconsequencesmostlyontheintensivemarginofproduction(improvingexistingapplications),ontheextensivemargin(newapplications),thereductioninthecostofnetworkingismoreconsequential:Bitcoinwasthefirstdigitalplatformtobebootstrappedinadecentralizedfashionwithoutresortingtoinvestmentsbyanintermediaryorplanner.Asearlyadoptersandinvestorsexperimentedwiththecryptocurrencyinthehopethatthenetworkwouldincreaseinusers,security2

2Inaproof-of-workblockchainsuchastheoneusedbyBitcoin,thesecurityofthepublicledgerdependsontheamountofcomputingpowerthatisdedicatedtoverifyingandextendingthelogoftransactionsovertime(i.e.thatisdedicatedto“mining”).

andvalue,theunderlyingtokenappreciated,generatingthepositivefeedbackloopneededtoattractsubsequentbatchesofusers.Thisorganicdiffusionprocessuseshigh-poweredincentivessimilartotheventurecapitalmodeltorewardearlyadoptersfortakingrisksanddedicatingtheirtime,effort,andcapitaltoanewplatform.Thesameincentivesystemisnowusedbystartupstoraisecapitalandlowerswitchingcostsfortheuserbaseanddevelopercommunityofentrencheddigitalincumbents.Thisallowsthemtocompeteinacontextwherenetworkeffectsarestronglyinfavorofestablishedplayers.

WhereasthereductioninthecostofverificationiswhatallowsBitcointosettletrans-actionswithoutanintermediary,thereductioninthecostofnetworkingiswhatalloweditsecosystemtoscaleinthefirstplace:Withineightyears,thedigital,scarcetokennativetoBitcoinwentfromhavingnovaluetoatotalmarketcapitalizationof$180B,3andisconsideredbyinvestorstobepartofanewassetclassandanoveltypeofstoreofvalue.

BeyondtheidiosyncraticmarketdesignchoicesbehindBitcoin,theabilitytotracktrans-actionattributes,settletradesandenforcecontractsacrossawidevarietyofdigitalassetsiswhatmakesblockchaintechnologyageneralpurposetechnology.Entriesonadistributedledgercanrepresentownershipincurrency,digitalcontent,intellectualproperty,equity,in-formation,contracts,financialandphysicalassets.Asaresult,thescalingmodelpioneeredbyBitcoinhasbeenadoptedbyopensourceprojectsandstartupsinterestedincreatingplatformsfortheexchangeofothertypesofscarce,digitalgoods.Forexample,Ethereumuseditsowntoken,Ether,tobootstrapadecentralizedmarketplaceforcomputingpowerandapplications,Filecoinfordatastorage,BATfordigitaladvertising,Blockstackfordigitalidentity,etc.

Thenewtypesofnetworksthatcanbecreatedusingthetechnologychallengethebusiness

3Themarketcapitalizationiscalculatedasthenumberoftokensincirculation(approximately16.8Mbitcoin)timesthevalueofeachtoken(theBitcointoUSDexchangeratewas$10,633inJanuary2018).Thesecondlargestcryptocurrency,Ethereum,hada$94Bmarketcap(source:/

-accessed01-22-2018).

modelsofincumbentdigitalplatformsandfinancialinstitutions,andopenopportunitiesfornovelapproachestotheexchangeofdigitalassets,dataownershipandmonetization,informationlicensing,andprivacy.Whereastheutopianviewhasarguedthatblockchainhasthepotentialtotransformeverydigitalservicebyremovingtheneedforintermediaries,wearguethatitismorelikelytochangethenatureofintermediationbyreducingthemarketpowerofintermediaries,andbyprogressivelyredefininghowtheyaddvaluetotransactions.4Thistransformationwillunfoldslowlybecauseeveninsectorsthatarewell-suitedforamoredecentralizedexchangeofdigitalassetssuchasfinance,therearecurrentlysubstantiallegalandregulatoryfrictionstoadoption.Whileblockchainallowsforthecostlessverificationofstatewhenallrelevantinformationisborndigital,mostmarketsalsorelyonexternalinformation–includinginformationaboutidentity–toensuresafeandcompliantexchanges.Asaresult,‘lastmile’frictionslimittheconditionsunderwhichblockchain-basednetworkscanreplaceexistinginfrastructure,ascomplementaryinnovationsareneededtoensurethattheshareddatamanagedthroughaconsensusprotocoliskeptinsyncwithcriticalofflineinformationandevents.

Thepaperproceedsasfollows:WefirstreviewtheliteratureinSection1.1.InSection2,wediscusstheeffectsofthereductioninthecostofverification.Section3focusesonthereductioninthecostofbootstrappingandoperatinganetwork.Section4concludes.

Literature

Thepapercontributestothenascentliteratureonblockchainbyprovidinganeconomicframeworkforunderstandinghowthetechnologychangesthetypesoftransactionsandnetworksthatcanbesustainedintheeconomy.Byfocusingonthetwokeyeconomic

4Forexample,whilefinancialintermediariesarecurrentlyabletochargerelativelyhighfeesforcross-

borderpaymentsandremittances,thisrevenuestreamwilldisappearifblockchain-basedpaymentnetworksdiffuseandcommodifythetransferofvalue.Atthesametime,thisdoesnotmeanthatintermediarieswillnotbeabletoprovideandchargefeesforaddedvalueservicesontopofabasicpaymentslayer(e.g.fraudprotectionformerchants,disputeresolution,etc.).

coststhetechnologyinfluences,thepaperabstractsawayfromsomeoftheidiosyncraticchoicesdifferentprotocolsmake(e.g.intermsofprivacy,consensusalgorithms,presenceofminingversusnot,etc.),andsurfaceshigh-leveldimensionsthathaveimplicationsformarketstructureandcompetitionwithexistingdigitalplatforms.Thislevelofanalysisallowsustohighlightcommonalitiesbetweenprotocolsthatmaybedifferentatamorefine-grainedtechnicallevel,butultimatelyshareasimilartrustandcompetitionmodel,andwillthushaveasimilarimpactonhowrentsareallocatedbetweenusers,developersandnodesprovidingresourcestoanetwork.TheAppendixprovidesadditionaltechnicaldetailsonhowsomeofthemostpopularcryptocurrencieswork,andataxonomyoftransactionsthatthetechnologycansupport(e.g.auctions,smartcontracts,digitalidentityandpropertyrights,audittrailsetc).

PreviousresearchinthisemergingareahasfocusedonprovidinganoverviewofBit-coinanditsoperations(B¨ohme,Christin,Edelman,andMoore2015,Narayanan,Bonneau,Felten,Miller,andGoldfeder2016);hascombinedtheoryanddatatoexplainthevelocityofBitcoinanditsuseacrosscountriesasaninvestmentvehicle,forgamblingandillegalonlinemarkets(Athey,Parashkevov,Sarukkai,andXia2016);andhasstudiedtheroleearlyadoptersplayinthediffusionanduseofBitcoinwithinalarge-scale,fieldexperiment(CataliniandTucker2017).

Researchershavealsoexaminedcompetitionbetweenalternativecryptocurrenciesandtheirdifferences(GandalandHalaburda2014,GansandHalaburda2015,Dwyer2015,Ha-laburdaandSarvary2016);thechangestheyentailfortradingbehavior(MalinovaandPark2016);theirintegrationwithfiat-basedcurrenciesanddirectuseforprovidingcitizenswithcentralbankmoney(RaskinandYermack2016,Seretakis2017,BordoandLevin2017)andalternativepaymentsystems(Beck,Czepluch,Lollike,andMalone2016,RysmanandSchuh2017);implicationsforregulationandgovernance(WrightandDeFilippi2015,David-son,DeFilippi,andPotts2016,Kiviat2015,Walport2016);andtheprivacytrade-offscryp-

tocurrenciesanddigitalwalletsintroduceforconsumers(Athey,Catalini,andTucker2017).

Fromabusinessperspective,scholarshavecomparedthetransformationbroughtaboutbyblockchaintotheintroductionofcommunicationprotocolssuchasTCP/IP(IansitiandLakhani2017,Ito,Narula,andAli2017),andhaveexploredapplicationstodigitalplatformsbeyondfinanceandimplicationsfortheboundariesofthefirm(Catalini2017a,Catalini2017b).

CostofVerification

Marketsfacilitatethevoluntaryexchangeofgoodsandservicesbetweenbuyersandsellers.Foranexchangetobeexecuted,keyattributesofatransactionneedtobeverifiedbythepartiesinvolved.Whenanexchangetakesplaceinpersonthebuyercanusuallydirectlyassessthequalityofthegoods,andthesellercanverifytheauthenticityofthecash.Theonlyintermediaryinvolvedinthisscenarioisthecentralbankissuingandbackingthefiat-currencyusedintheexchange.Whenatransactionisperformedonlineinstead,oneormorefinancialintermediariesbrokeritbyverifying,forexample,thatthebuyerhassufficientfunds.Intermediariesaddvaluetomarketplacesbyreducinginformationasymmetryandtheriskofmoralhazardthroughthird-partyverification.Thisofteninvolvesimposingadditionaldisclosures,monitoringparticipants,maintainingtrustworthyreputationsystems,andenforcingcontractualclauses.Asmarketsscaleinsizeandgeographicreach,verificationservicesbecomemorevaluable,asmostpartiesdonothavepreexistingrelationships,butrelyonintermediariestoensurethesafetyoftransactionsandenforcecontracts.Intheextremecasewhereverificationcostsareprohibitivelyhigh,marketsunravel,andbeneficialtradesdonottakeplace.

Inexchangefortheirservices,intermediariestypicallychargeafee.Thisisoneofthecostsbuyersandsellersincurwhentheycannotefficientlyverifyalltherelevanttransaction

attributesbythemselves.Additionalcostsmaystemfromtheintermediaryhavingaccesstotransactiondata(aprivacyrisk),andbeingabletoselectwhichtransactionstoexecute(acensorshiprisk).

Thesecostsareexacerbatedwhenintermediariesgainmarketpower,oftenasaresultoftheinformationaladvantagetheydevelopovertransactingpartiesthroughtheirinterme-diationservices(Stiglitz2002).Transactingthroughanintermediaryalwaysinvolvessomedegreeofdisclosuretoathird-party,andincreasesthechancethattheinformationwillbelaterreusedoutsideoftheoriginalcontractualarrangement.Moreover,asanincreasinglylargeshareofeconomicandsocialactivityisdigitized,keepingdatasecurehasbecomemoreproblematicandinformationleakagemoreprevalent.Classicexamplesarethetheftofsocialsecuritynumbers(e.g.Equifaxhack)andcreditcarddata(e.g.Targetdatabreach),orthelicensingofcustomerdatatoadvertisers.Blockchaintechnologycanpreventinformationleakagebyallowingmarketparticipantstoverifytransactionattributesandenforcecon-tractswithoutexposingtheunderlyinginformationtoathird-party.5Thisallowsanagenttoverifythatsomepieceofinformationistrue(e.g.goodcreditstanding),withoutfullaccesstoallbackgroundinformation(e.g.pasttransactionrecords):i.e.,thetechnologyallowsfortheverificationoftransactionattributesinaprivacy-preservingway.

Digitizationhaspushedverificationcostsformanytypesoftransactionsclosetozero.Whentherelevantinformationisdigital,blockchaintechnologycontributestothisprocessbyallowingforcostlessverification.6Ofcourse,attheinterfacebetweenanofflinerecordanditsdigitalrepresentationblockchainapplicationsstillfacesubstantialfrictionsand“l(fā)astmile”costs(TuckerandCatalini2018).Thisexplainswhy,despiteclaimsbytechnologyenthusiastsaboutthevalueofusingthetechnologyacrossavarietyofapplicationsincluding

5Thisisachievedbycombiningadistributedledgerwithzero-knowledgecryptography.ExamplesincludecryptocurrenciessuchasZcashandZcoin.

6Inpractice,verificationcostswillneverbeexactlyzero.Whatwemeanby‘costless’islowenoughtobeirrelevantfromaneconomicperspectiverelativetothevalueofthetransaction.

supplychainmonitoringanddigitalidentity,usecasesoutsideofcryptocurrencyandfintech(settingswherekeyinformationandassetsaredigital)havebeenextremelylimited.Thelinkbetweenonline“on-chain”activitiesrecordedonablockchainandoffline“off-chain”eventsintroducesmajorchallengeswhichcannotbeovercomewithoutcomplementaryinnovations.Forexample,ablockchainsuchastheBitcoinonecanbeusedtocheaplyverifyownershipandexchangesofitsnativedigitalasset.Whilethistechnicallyallowsanyonetosendandreceivebitcoingloballywithoutusinganintermediaryorbeingcensored,actuallybeingabletospendbitcointobuygoodsandservicesofflinestillrunsintolastmileissues.Hence,whileBitcoinhasbeenusedincountrieswithhyperinflationtoescapedevaluation,itsuseasamediumofexchangehasbeenlimited,andgovernmentscanstillshapehowthesedigitalassetsareusedattheinterfacebetweenthedigitalandthephysicalworld.Similarly,informationaboutidentityisoftenusedtoincreasethesafetyofmarketinteractions,reducefraudandbuildrobustdigitalreputationsystems,butbeingabletolinkanonlineactionanddigitalrecordonablockchaintoanofflineindividualorentityisasexpensivewithblockchaintechnologyasitwouldbewithmoretraditionalsolutions.Thisdrasticallylimitsthebenefitsblockchainandsmartcontractscanbringintheabsenceofcomplementarytechnology(e.g.atamper-proofGPSsensor),firmsandinstitutionsthatcanhelpensurethatthedigitalrecordsareaccuratetobeginwith.

Thehigh-levelprocessofverificationisdescribedinFigure1:Whenadigitaltransactionisborn,itimmediatelyinheritssomebasicattributes,suchasthefactthatitexistsandwhenitwascreated,informationaboutthesellerandbuyerinvolvedandtheircredentials,etc.Wetypicallyrelyontheseattributestoperformsubsequentactions(e.g.,oncefundsaretransferred,thesellermayshipthegoods).Someoftheseactionstakeplaceeverytime(e.g.settlement),whereasothersareonlytriggeredbyspecificevents.Aparticularlyinterestingsubsetoffutureeventsarethosethatrequireadditionalverification.Forexample,aproblemmayemerge,andtransactionattributesmayneedtobecheckedthroughanaudit.The

auditcouldrangefromactualauditorsaccessingtherelevantlogsorrequestingadditionalinformationfrommarketparticipants,totheexecutionofaninternalprocessdesignedtohandletheexception.Suchprocessestendtobecostly,mayinvolvelaborandcapital,andmayrequireathird-partytomediatebetweenbuyerandseller.Theidealoutcomeofanauditistheresolutionoftheproblemthatemerged.

Figure1:CostlyVerificationThroughanIntermediary(Audit)versusCostlessDigitalVer-ificationonaBlockchain

Blockchaintechnologyaffectsthisflowbyallowing,whenaproblememerges,forthecostlessverificationofdigitalinformation.Anytransactionattributeorinformationontheagentsandgoodsinvolvedthatisstoredonadistributedledgercanbecheaplyverified,inrealtime,byanymarketparticipant.Trustintheintermediaryisreplacedwithtrustintheunderlyingcodeandconsensusrules.7Theserulesdefinehowadistributednetworkreachesagreement,atregularintervals,aboutthetruestateoftheshareddataitneedstomaintaintooperateawell-functioningmarketplace.Ataminimum,suchshareddatacanrepresent

7Ifwethinkoftheauditcapabilityofthethird-partythatinterveneswhenaproblememergesina

traditionalmarketassurveillanceormonitoring,blockchaintechnologycandeliver“sousveillance”(Mann,Nolan,andWellman2002),i.e.anauditthatisembeddedwithintherulesofthemarketplace.

pasttransactionsandoutstandingbalancesinanunderling,cryptographictoken(i.e.itcouldbeasnapshotoftheownershiprightsinthetoken).Inmorecomplexapplications,theshareddatacanalsocovertherulesanddatarequiredtoperformaspecificoperation(i.e.torunanapplication,verifythatacontractclauseisenforced).Theseoperations,oftenreferredtoas‘smartcontracts’,8canbeautomatedinresponsetonewevents,addingflexibilitytotheverificationprocess.Forexample,onasharedledgerusedtoexchangefinancialassets,transactinginstitutionscanagree,ex-ante,ontherulesforthesettlementandreconciliationoftrades,aswellasontheprocesstheywillfollowandthird-partiestheywillinvolveifanauditisnecessaryoradisputeemerges.Trusted,independentoraclescanalsobeincorporatedtoensurethatsuchfinancialcontractscanrespondtomarketconditionsandnewinformation(e.g.toimplementaweatherderivative,asmartcontractcanaggregateinformationacrossmultipleweathersourcestoassessifapayouthastobemade).

Aswithpastimprovementsininformationandcommunicationtechnology,reductionsinthecostofverificationenabletheunbundlingofservicesthatwerepreviouslyofferedtogether,aspartofthestepstraditionallyperformedbyanintermediarycannowbedeliveredthroughasharedledger.Thisallowsthesestepstobecollectivelyownedandmanagedbyabroadergroupofecosystemstakeholders,inawaythatresemblescollaborationamongcompetitorsandcomplementorsinstandardsettingorganizations(Bekkers,Catalini,Martinelli,Righi,andSimcoe2019)oropensourcefoundations.Theeffectsofthischangehavebeenmostly

8In1996,NickSzabodefinedsmartcontractsas:“Thebasicideaofsmartcontractsisthatmanykindsofcontractualclauses(suchasliens,bonding,delineationofpropertyrights,etc.)canbeembeddedinthehard-wareandsoftwarewedealwith,insuchawayastomakebreachofcontractexpensive(ifdesired,sometimesprohibitivelyso)forthebreacher.Acanonicalreal-lifeexample,whichwemightconsidertobetheprimitiveancestorofsmartcontracts,isthehumblevendingmachine.Withinalimitedamountofpotentialloss(theamountinthetillshouldbelessthanthecostofbreachingthemechanism),themachinetakesincoins,andviaasimplemechanism,whichmakesabeginner’slevelproblemindesignwithfiniteautomata,dispensechangeandproductfairly.Smartcontractsgobeyondthevendingmachineinproposingtoembedcontractsinallsortsofpropertythatisvaluableandcontrolledbydigitalmeans.Smartcontractsreferencethatpropertyinady-namic,proactivelyenforcedform,andprovidemuchbetterobservationandverificationwhereproactivemea-suresmustfallshort.”Source:

http://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/

Literature/LOTwinterschool2006//smart_contracts_2.html

feltontheintensivemarginofproduction(i.e.onimprovingtheefficiencyofpre-existingusecases),asfirmsareexperimentingwithmovingdifferenttypesoftransactionstoblockchain-basedsystemstoreducesettlementandreconciliationcosts.9

Asaconsequence,applicationsresultingfromthereductioninthecostofverificationhavebeencomplementarytoincumbents,astheyimproveexistingvalue-chainsbyloweringthecostoftrackingownershipandtradingdigitalassetswithoutreducingthemarketpowerofexistingplayers.Furthermore,evenwhenverificationcanbeautomated,intermediariescanstilladdvalueandretaininfluenceoveramarketbysupportingregulatorycompliance,marketsafety,handlingedgecases(e.g.achargeback),andcertifyinginformationthatrequireslabor-intensive,offlineformsofverification.Thisexplainswhyimplementationsofthetechnologytargetedatidentityandprovenancehavebeenslowertodiffuse:Whiletheverificationofdigitalattributescanbecheaplyimplementedonablockchain,theinitialmappingbetweenofflineeventsandtheirdigitalrepresentationsisstillcostlytobootstrapandmaintain.Therefore,asdigitalverificationcostsfall,keycomplementstoitthatcanimprovetheprocessofofflineverificationbecomemorevaluable.

Ononeextreme,blockchaintechnologycanbeusedtosettletradesofdigitalassetsthatarecompletelyself-containedwithinasharedledger(e.g.bitcoin,ether).Theconsensusrulesestablishedinthecodedefinehowtokensarecreatedandearned,andhowthenetworkreachesagreementaboutthetruestateofownershipovertime.10Thecostofverifyingtrans-actionattributesandenforcingsimplecontractsforself-containedtokenscanbeextremelylow.ThisiswhatallowsforvaluetobetransferredthroughBitcoinacrosstheglobeat

9Ripple,forexample,usesthetechnologytoallowforcross-borde