Working Paper: CEPR ID: DP13493
Authors: Daniel Ferreira; Jin Li; Radoslawa Nikolowa
Abstract: We develop a theory of blockchain governance. In our model, the proof-of-work system, which is the most common set of rules for validating transactions in blockchains, creates an industrial ecosystem with specialized suppliers of goods and services. We analyze the two-way interactions between blockchain governance and the market structure of the industries in the blockchain ecosystem. Our main result is that the proof-of-work system leads to a situation where the governance of the blockchain is captured by a large firm.
Keywords: governance; blockchain; industrial ecosystem; proof-of-work
JEL Codes: G30; L13; M20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| proof-of-work system (P13) | governance capture by a large corporate stakeholder (G34) |
| proof-of-work system (P13) | industrial ecosystem with specialized suppliers (L99) |
| emergence of specialized equipment producers (L63) | market where a single firm dominates (L12) |
| dominant firm (L10) | incentives to enter mining pool services market (D49) |
| equipment producer's control over mining pools (L72) | disproportionate influence on governance decisions (D72) |
| market power (L11) | influence on governance outcomes (D72) |