Abstract
This chapter uses economic theory to explore the implications of blockchain technology on the future of banking. We apply an economic analysis of blockchains based on both new institutional economics and public choice economics. Our main focus is on the economics of why banks exist as organizations (rather than a world in which all financial transactions occurring in markets), and how banks are then impacted by technological change that affects transaction costs. Our core argument is that blockchains are more than just a new technology to be applied by banks, but rather compete with banks as organizations, enabling banking transactions to shift out of centralized hierarchical organizations and back into decentralized markets. Blockchains are a new institutional technology—because of how they affect transaction costs in financial markets—that will fundamentally re-order the governance of the production of banking services. We then explore this implication through broader political economy lens in which banking moves out of organizations and deeper into markets. We examine this as a form of institutional economic evolution in which the boundary of catallaxy—i.e., a self-organized economy—is enlarged, at the margin of the banking sector. Such institutional competition enables evolutionary discovery in the institutions of banking.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Allen, D.W.: The institutional revolution: measurement and the economic emergence of the modern world, University of Chicago Press (2011)
Allen, D.W.E.: Discovering and developing the blockchain cryptoeconomy (2016). http://ssrn.com/abstract=2815255
Atzori, M.: Blockchain technology and decentralized governance: is the state still necessary? (2015). http://ssrn.com/abstract=2709713
Böhme, R., Christin, N., Edelman, B., Moore, T.: Bitcoin: Economics, technology, governance. J. Econ. Perspect. 29(2), 213–238 (2015)
Bresnahan, T.F., Trajtenberg, M.: General purpose technologies ‘Engines of growth’? J. Econom. 65(1), 83–108 (1995)
Brito, J.: The Law of Bitcoin, iUniverse (2015)
Buchanan, J.M.: The domain of constitutional economics. Const. Polit. Econ. 1(1), 1–18 (1990)
Buchanan, J.M., Faith, R.: Secession and the limits of taxation: Toward a theory of internal exit. Am. Econ. Rev. 77(5), 1023–1031 (1987)
Buchanan, J.M., Tullock, G.: The Calculus of Consent, University of Michigan Press (1962)
Buterin, V.: DAOs, DACs, DAS and more: an incomplete terminology guide, Ethereum Blog (2014a). https://blog.ethereum.org/2014/05/06/daos-dacs-das-and-more-an-incomplete-terminology-guide/
Buterin, V.: Ethereum whitepaper: A next generation smart contract and decentralized application platform (2014b). https://www.ethereum.org/pdfs/EthereumWhitePaper.pdf
Buterin, V.: Visions part I: The value of blockchain technology (2015). https://blog.ethereum.org/2015/04/13/visions-part-1-the-value-of-blockchain-technology/
Chuen, D.L.K.: Handbook of Digital Currency: Bitcoin, Innovation, Financial Instruments, and Big Data, Academic Press (2015)
Coase, R.H.: The nature of the firm. Economica 4(16), 386–405 (1937)
Davidson, S., De Filippi, P., Potts, J.: Economics of blockchain (2016). http://ssrn.com/abstract=2744751
De Filippi, P.: Bitcoin: a regulatory nightmare to a libertarian dream. Internet Policy Rev. 2(2), 1–11 (2014)
Dourado, E., Brito, J.: Cryptocurrency. In: Durlauf, S.N., Blume, L.E. (eds.) The New Palgrave Dictionary of Economics (2014) http://www.dictionaryofeconomics.com/article?id=pde2014_C000625
Dwyer, G.P.: The economics of Bitcoin and similar private currencies. J. Financ. Stab. 17, 81–91 (2015)
Earl, P., Dow, S.: Money Matters, Harvester Wheatsheaf (1982)
Economist: The promise of the blockchain: The trust machine (2015). http://www.economist.com/news/leaders/21677198-technology-behind-bitcoin-could-transform-how-economy-works-trust-machine
Ellerman, D.: Parallel experimentation: a basic scheme for dynamic efficiency. J. Bioecon. 16(3), 259–287 (2014)
Evans, D.: Economic aspects of Bitcoin and other decentralised public-ledger currency platforms’, Coase-Sandor Institute for Law and Economics, working paper#685 (2014)
Ferguson, N.: The Ascent of Money: A Financial History of the World, Penguin Books (2008)
Franco, P.: Understanding Bitcoin: Cryptography, Engineering and Economics. Wiley (2014)
Harvey, C.: ‘Cryptofinance’(2015). http://ssrn.com/abstract=2438299
Hayek, F.A.: Individualism and Economic Order, University of Chicago Press (1948)
Hayek, F.A.: The Constitution of Liberty, University of Chicago Press (1960)
Hayek, F.A.: The theory of complex phenomena. In: Bunge, M. (ed.) The Critical Approach to Science and Philosophy: Essays in Honour of Karl Popper. Transaction Publishers (1964)
Hayek, F.A.: The Denationalization of Money: The Argument Refined. Institute for Economic Affairs (1978)
Hayek, F.A.: Law, Legislation and Liberty: A New Statement of the Liberal Principles of Justice and Political Economy. Routledge (1982)
Hayek, F.A.: The Fatal Conceit: The Errors of Socialism. Routledge (1988)
Hayek, F.A.: The pretence of knowledge. Am. Econ. Rev. 79(6), 3–7 (1989)
Hayek, F.A., White, L.H.: The Pure Theory of Capital. University of Chicago Press (2007)
He, D., Habermeier, K., Leckow, R., Haksar, V., Almeida, Y., Kashima, M., Kyriakos-Saad, N., Oura, H., Sedik, T.S., Stetsenko, N., Verdugo-Yepes, C.: Virtual Currencies and Beyond: Initial Considerations. International Monetary Fund (2016)
Hendrickson, J.R., Hogan, T.L., Luther, W.J.: The political economy of bitcoin. Econ. Inq. 54(2), 925–939 (2015)
Hodgson, G.M.: Economics and Utopia: Why the Learning Economy is not the End of History. Psychology Press (1999)
Hodgson, G.M.: Conceptualizing Capitalism. University of Chicago Press (2015)
Holmstrom, B.: The firm as a subeconomy. J. Law. Econ. Organ. 15(1), 74–102 (1999)
Kostakis, V., Giotitsas, C.: The (a)political economy of Bitcoin’. Commun. Capital. Crit. Open Access J. Glob. Sustain. Inf. Soc. 12(2), 431–440 (2014)
Lipsey, R., Carlaw, K., Bekhar, C.: Economic Transformations: General Purpose Technologies and Long Term Economic Growth. Oxford University Press (2005)
Luther, W.J.: Cryptocurrencies, network effects, and switching costs. In: Contemporary Economic Policy (2015). http://onlinelibrary.wiley.com/doi/10.1111/coep.12151/abstract
MacDonald, T.J.: Cryptosecession and the limits of taxation: Toward a theory of non-territorial internal exit (2015a).http://ssrn.com/abstract=2661226
MacDonald, T.J.: Spontaneous order in the formation of non-territorial political jurisdictions (2015b). http://ssrn.com/abstract=2661250
MacDonald, T.J.: The social media spontaneous order is a constellaxy. J. Brief Ideas (2015c). http://beta.briefideas.org/ideas/2e9e15b6adb3e76e44f4cf2a9f8f9a01
MacDonald, T.J.: The unbundled state: Economic theory of non-territorial unbundling. In: Tucker, A., de Bellis, G.P. (eds), Panarchy: Political Theories of Non-Territorial States. Routledge (2015d)
Nakamoto, S.: Bitcoin: A peer-to-peer electronic cash system (2008). https://bitcoin.org/bitcoin.pdf
Nussbaum, F.: A History of the Economic Institutions of Modern Europe: An Introduction of ‘Der Moderne Kapitalismus’ of Werner Sombart. Crofts (1933)
Olson, M.: The Logic of Collective Action. Harvard University Press (1965)
Olson, M.: The Rise and Decline of Nations. Yale University Press (1982)
Ostrom, E.: Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University Press (1990)
Pagano, U., Vatiero, M.: Costly institutions as substitutes: Novelty and limits of the Coasian approach. J. Inst. Econ. 11(2), 265–281 (2015)
Peltzman, S.: Toward a more general theory of regulation. J. Law. Econ. 2, 211–240 (1976)
Peters, G.W., Panayi, E., Chapelle, A.: Trends in crypto-currencies and blockchain technologies: a monetary theory and regulation perspective (2015). http://ssrn.com/abstract=2646618
Pilkington, M.: Blockchain technology: Principles and applications. In: Olleros, F.X., Zhegu. M. (eds.) Research Handbook on Digital Transformations. Edward Elgar (2016)
Potts, J.: Knowledge and markets. J. Evol. Econ. 11(4), 413–431 (2001)
Rochet, J.C., Tirole, J.: Platform competition in two-sided markets. J. Eur. Econ. Assoc. 1(4), 990–1029 (2003)
Roth, A.E., Sotomayor, M.A.O.: Two-Sided Matching: A Study in Game-Theoretic Modeling and Analysis. Cambridge University Press (1992)
Schumpeter, J.A.: Capitalism, Socialism and Democracy. Harper & Brothers (1942)
Scott, B.: How Can Cryptocurrency and Blockchain Technology Play a Role in Building Social and Solidarity Finance?. United Nations Research Institute for Social Development (2016)
Stigler, G.J.: The theory of economic regulation. Bell J. Econ. Manag. Sci. 2, 3–21 (1971)
Swan, M.: Blockchain: Blueprint for a New Economy. O’Reilly Media (2015)
Tasca, P.: Digital Currencies: Principles, trends, opportunities, and risks (2015). http://ssrn.com/abstract=2657598
Thierer, A.: Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom. Mercatus Center at George Mason University (2014)
Twight, C.A.: Political transaction-cost manipulation. In: Rowley, C., Schneider, F. (eds.) The Encyclopedia of Public Choice. Springer (2004)
Vihanto, M.: Competition between local governments as a discovery procedure. J. Inst. Theor. Econ. 148(3), 411–436 (1992)
Walport, M.: Distributed Ledger Technology: Beyond Blockchain. UK Government Office for Science (2016)
White, L.H.: The Theory of Monetary Institutions. Blackwell (1999)
White, L.H.: Inflation and the Federal Reserve: The Consequences of Political Money Supply, Cato Policy Analysis (2015). http://www.cato.org/publications/policy-analysis/inflation-federal-reserve-consequences-political-money-supply
White, L.H.: The market for cryptocurrencies. Cato J. 35(2): 383–402 (2015a)
Williamson, O.E.: Transaction cost economics: the governance of contractual relations. J. Law. Econ. 22(2), 233–261 (1979)
Williamson, O.E.: The Economic Institutions of Capitalism. Free Press (1985)
Wohlgemuth, M.: Learning through institutional competition. In: Bergh, A., Höijer, R. (eds.) Institutional Competition. Cheltenham (2008)
Wright, A., De Filippi, P.: Decentralized blockchain technology and the rise of Lex Cryptographia (2015). http://ssrn.com/abstract=2580664
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2016 Springer International Publishing Switzerland
About this chapter
Cite this chapter
MacDonald, T.J., Allen, D.W.E., Potts, J. (2016). Blockchains and the Boundaries of Self-Organized Economies: Predictions for the Future of Banking. In: Tasca, P., Aste, T., Pelizzon, L., Perony, N. (eds) Banking Beyond Banks and Money. New Economic Windows. Springer, Cham. https://doi.org/10.1007/978-3-319-42448-4_14
Download citation
DOI: https://doi.org/10.1007/978-3-319-42448-4_14
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-42446-0
Online ISBN: 978-3-319-42448-4
eBook Packages: Physics and AstronomyPhysics and Astronomy (R0)