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Understanding the Blockchain Economy

An Introduction to Institutional Cryptoeconomics

Chris Berg, Sinclair Davidson and Jason Potts

Blockchains are the distributed ledger technology that powers Bitcoin and other cryptocurrencies. But blockchains can be used for more than the transfer of tokens – they are a significant new economic infrastructure. This book offers the first scholarly analysis of the economic nature of blockchains and the shape of the blockchain economy. By applying the institutional economics of Ronald Coase and Oliver Williamson, this book shows how blockchains are poised to reshape the nature of firms, governments, markets, and civil society.
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Index

Chris Berg, Sinclair Davidson and Jason Potts

accounting 66, 67
ledger 57
practices 69
technologies 67
adoption 16, 90, 91, 119, 134, 135, 149, 150, 152, 162, 164
Agrawal, Ajay 92, 93
Akerlof, George 27
Alchian, Armen 30, 31
Al-Ghazali, Abu Hamid 77
application specific integrated circuits (ASICs) 41, 43
Arrow, Kenneth 154
artificial intelligence (AI) 923
asset specificity 24
barter economy 18, 76, 91
bartering 916
Beige, Oliver 128
Bekar, Clifford 15, 16
Bitcoin 57, 10, 11, 29, 41, 42, 50, 825, 92, 138
Bitcoin 0.1 software 74
Bitcoin cryptocurrency 1
Bitcoin ‘governance crisis’ 48
Bitcoin White Paper 3, 9, 37, 42, 74
BitLicense 140
Black, Duncan 1, 2
blockchain property register 36
Boettke, Peter 38
bounded rationality 24, 25
broadcast chain 113
Brunner, Karl 77
Buchanan, James 1, 50
budget deficits 91
Buterin, Vitalik 145
Byrne, John 125
capitalism 75, 15264
economic institutions of 43
evolution of 1538
card and loose-leaf ledgers 69
Carlaw, Kenneth 15, 16
Casper protocol 29
catallaxy 44
Cellarius 9
central bank cryptocurrency 35
chainsplits 51
Chandler, Alfred D. 70, 122, 124, 125
clay envelopes 70
Coase, Ronald 1, 16, 17, 21, 38, 160
coloured coins 92
commodisation 108
commodities 78
commodity exchanges 18
complex adaptive systems 118
complex economic activity 46
consensus mechanisms 3
constitutional orders 446
constitutional protocols 44
constitutions 47, 50, 51
consumer protection laws 163
consumers contract 73
contracting processes 25, 30
corporate organisation 13, 69, 124, 167
Crusoe, Robinson 37
crypto-altruism 114
‘Crypto Anarchist Manifesto’ 4
crypto-anarchists 4
cryptocurrencies 39, 29, 40, 45, 51, 74, 846, 88, 90, 94, 139, 140, 165, 167
cryptocurrency investors 49
crypto-friendliness 143, 147
crypto-friendly public policy 14046
cryptography 70, 138
The Cyclops 102
Dahl, Roald 19, 31
Das Kapital 153
debt 85, 86
decentralised autonomous organisation (DAO) 46
decommodisation 108, 109
Decred 49
de-hierarchicalisation 15861
democratic government 1
Demsetz, Harold 30
dequity 868
Der moderne Kapitalismus 67
dictatorship 88
dictatorship costs 36
dictatorship–disorder trade-off 89
digital cash developments 5
digital cash system 5
digital communications system 4
digital currencies 138
digital currency 90
digital payments 4
directed acyclic graphs (DAGs) 10
dishonesty 19
disorder costs 35
dispute resolution mechanism 34
distributed autonomous organisations (DAOs) 9, 94
distributed ledgers 43, 54, 1035, 108, 118, 140, 166, 167
technologies 53
technology 3, 37
distributed property register 36
double-entry bookkeeping 679
double spending problem 5
Downs, Anthony 1, 2
early stage technologies 10
economic analysis 1
economic characteristics 40, 42
economic dynamism 162
economic goods 39
economic inquiry 1
economic institutions 3
economic mechanism 28
effective institutional innovations 17
electronic data interchange (EDI) 104, 105, 135
employment contracts 21
entangled political economy 158
entrepreneurs 51
equity 86
Ethereum 810, 29
ex ante and ex post costs 22
ex ante opportunism 35
ex post opportunism 35
Federalist 55 26
fiat currency 7880, 82, 89, 90
fifth party logistics (5PL) 129, 130
firms 31, 72, 98, 12037
smaller firms 1367
until 2009 12024
food fraud 102, 103
forking 47
as constitutional experimentation 5053
Friedman, Milton 79
Friedrich Hayek 45
Gans, Joshua 92, 93
Geistgeld 52
general ledger 59, 62, 63, 73
general purpose technologies (GPTs) 15, 16, 83
Glassman, David M. 86
global mobility 148
global supply chains 99
Goldfarb, Avi 92, 93
Goldschmidt, Richard 10
governance 25
government hierarchies 36
Harari, Yuval 81
hashcash 6
Hau Lee 104
Hayek, Friedrich 1, 38, 44, 51, 79
Hedera Hashgraph 42
high-frequency barter 916
vs money exchange 93
high-trust economics 11, 12
Hirschman, Albert 75
Hodgson, Geoffrey 18
Hollerith, Herman 69
IBM‒Maersk project 130
identity 96119
identity fraud 62
identity information 101, 135
immutability 96, 97
incentives 20
industrial internet of things (IIoT) 104
inflating currency 90
information costs 77
information hub model 105
information transfer model 105
initial coin offerings (ICOs) 1436
initial public offering (IPO) 144
institutional cryptoeconomics 1, 2, 12, 55, 56, 60, 153
institutional economics 2, 1536, 56
blockchains and economic regulation 315
blockchains and institutions 356
planning, promise, and governance 216
transaction costs and economic problem 1721
trust, industrialisation of 2631
institutional innovation 2
institutional possibility frontier (IPF) 33, 34
institutional technologies 55, 67, 117, 146, 150, 151
international competition 14751
internet of things (IoT) 104
interoperability, ledger rules 72
Keynes, John Maynard 154
Klein, Benjamin 79, 80
kludgeocracy 158
Krugman, Paul 78, 79
labour laws 163
large-scale capital investment 154
lead logistics provider (LLP) 129
ledgers 569, 127
consensus 46
definition of 57
economic function of 59, 60
institutional economics of 70
managing 55
microfoundations of 5473
rule-sets 7073
science 54
and supply chains 11519
technology, evolution 6470
technology, property 6064
theoretical distinctions 5960
Lipsey, Richard 15, 16
Loasby, Brian J. 24
Locke, John 60
Locomotion No. 1 165
logistics models 129
Madison, James 26
‘mainline’ economics 38
managerial revolution 70
Marglin, Stephen 159, 160
market discipline 33
market transactions 25
Marx, Karl 153, 154, 156
Marx‒Schumpeter thesis 156
Matilda 19, 31
May, Timothy C. 4
McCallum, Daniel 57
McCloskey, Deidre 166
Meindertsma, Christien 94
Mellis, John 57
Meltzer, Allan 77
Merkle tree 6, 45
methodological considerations 1012
M-form organisation 1224, 136, 137
modern corporation 122
modern economic policy 152
Mokyr, Joel 11
monetary policy 89
money 768
crypto-tokens and 825
definition of 76
financial instrument, tokens 858
future of 8891
prime function of 75
public good and 81
supply of 7882
system 74
moral allegiance 157
moral hazard 19
mortgage securitisation chain 112
multidivisional firm 122
Nakamoto, Satoshi 1, 3, 4, 6, 7, 9, 16, 37, 47, 74, 82, 139, 15264
Namecoin 52
Nelson, Richard 154
New York Agreement 49, 50
non-profit organisation 39
North, Douglass 38, 56
Novak, Mikayla 141
open source software (OSS) 47, 52
operational scripting languages 8
opportunism 238, 32, 35, 36, 105
Ostrom, Elinor 1, 39, 40
Paleolithic societies 66
paradox of trust 36
peer-to-peer network 6, 48
perfect ledger 60
characteristics of 61
permissionless innovation approach 142
pictographic writing 65
Pigou, A.C. 154
planning 26
platform chain 113, 114
policy uncertainty 145
potential contract 24
private actors 33
private dispute resolution 21
private litigation 33
private money 87
production chain 110
promise 26
property rights 63
global distribution of 95
non-excludability 80
protection of 53
prudential laws 163
public enforcement through regulation 33
public goods 51
public key cryptography 6
public policy 13851
changed demand for 1614
crypto-friendly 14046
international competition and coordination 14751
Puffing Devil 165
Rand, Ayn 76
Rawls, John 50
regulation 33
of economic exchange 32
institutional theory of 32
regulatory controls 164
regulatory interventions 163
reliability 28
representative democracy 2
Robertson, D.H. 16
Rodrik, Dani 32
rules of game 56
Sandel, Michael 75
Schelling, Thomas 56
Schmandt-Besserat, Denise 65, 66
Schumpeter, Joseph 75, 154, 156
Scott, James C. 58
Searle, John 56, 58
segregated witness 49
Seungjin Whang 104
Shackle, George 25
shared mental ledger 63
shareholder protection laws 163
Shleifer, Andrei 325
Silk Road marketplace 138, 139, 165
Simon, Herbert 22
simple market‒government dichotomy 38
smart contracts 3, 8, 9, 26, 36, 46, 152
Smith, Adam 1, 16, 17, 23, 38, 76, 152, 154, 160
social capital 127
Sombart, Werner 67
Sombartian thesis 68
stablecoin 90
state accounting 66
state ownership 33, 34
stewardship 108
Stewart, G. Bennett III 856
Strassman, Paul 14
supply and demand diagram 15
supply chains 96119
in high-trust age 1069
identity information 101
identity theory of 10915
as information problem 97101
and ledgers 11519
management 117, 130
reducing opportunism in 1026
supply contracts 21
Szabo, Nick 8, 26
tallies 64
Teles, Steven 158
Tezos 49, 50
Thierer, Adam 142, 143
tokenisation 914, 96, 100
tokens 7, 8, 29, 40, 52, 65, 70, 74, 75, 95, 131, 144
as financial instrument 858
tokens-as-dequity 88
TradeLens approach 130, 131, 1335
transaction costs 1, 1618, 21, 30, 38, 54, 67, 76, 77
transfer costs 18
triangulation costs 18
trusts 106, 132
costs 18
and de-hierarchicalisation 15861
industrialisation of 2631
machine 2
trustworthiness 28
Turing, Alan 8, 43
U-form organisation 1224, 137
universal Turing institution 3753, 88
constitutional consensus, governing 4650
constitutional experimentation, forking 5053
constitutional orders and 446
institutional technologies and blockchains 3744
V-form organisations 12530, 133, 134, 136, 137
virtual organisation 13, 125, 127
Wagner, Richard 158
Wealth of Nations 2, 154, 160
Wicksell, Knut 50
Wilcox-O’Hearn 10
Williamson, Oliver 2, 12, 217, 38, 857, 124, 137, 162
Wormwood, Harry (Matilda) 19, 20, 25, 27