The blockchain is more than an information technology—it’s an institutional technology. This means that institutional economics, as well as public choice and constitutional political economy, should provide the toolkit for ‘blockchain studies’. That’s the argument I’ll make at the 2016 Public Choice Society conference this week, where I’ll be presenting some of the latest research from the Melbourne Crypto research network. First I’ll present a paper with my former student Trent MacDonald on the economics of ‘cryptosecession’. Then I’ll present the ‘economics of blockchain’ paper, co-authored with RMIT colleague Sinclair Davidson and Primavera De Filippi of Harvard’s Berkman Centre.
A blockchain is a way of creating a robust, secure, transparent distributed ledger. This revolutionary new technology is also an unusual technology in that while manifestly an information and computation technology (an ICT)—as a software protocol based on cryptography, a blockchain is a new technology for public databases (of digital information)—it is actually better understood as an institutional or social technology for coordinating people.
The purpose of this paper is to elaborate the economics of blockchain, and specifically the implication that what at first appears to be part of the ICT revolution is actually better understood as a revolution (or evolution) in institutions, organization and governance. Which is to say that this is a job for new institutional economics and public choice economics, rather than what would prima facie seem the more obvious approach as an economics of money (because blockchain underpins Bitcoin, a cryptocurrency, Böhme et al 2015, Hendrickson et al 2015, White 2015), or an economics of information, innovation and technological change (because blockchain is a disruptive new technology, Swan 2015, Wiles 2015, Pilkington 2016).
A public choice/new institutional approach to the economics of blockchains can help illuminate how this new technology is likely to affect the economy. We use a case study of an Ethereum-based platform (Ethereum is a decentralized generalized blockchain, a foundation protocol for a cryptographically secure transaction-based state machine) called Backfeed that is a generic token-based reputational-scoring consensus-discovering engine for evaluating contributions to projects on a network (e.g. a knowledge or innovation commons). This blockchain-Ethereum-Backfeed complex is, we suggest, best analyzed not as a new technology in an economy of markets and organizations, but, more interestingly, as a new type of economy: a ‘spontaneous organization’, which is a self-governing organization with the coordination properties of a market (Hayek 1945, 1978), the governance properties of a commons (Ostrom 1990), and the constitutional properties of a nation state (Brennan and Buchanan 1985).