Blockchain: The Birth of Decentralized Governance
Arruñada, Benito and Luis Garicano (2018), “Blockchain: The Birth of Decentralized Governance”, Pompeu Fabra University, Economics and Business Working Paper Series, 1608.
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By allowing networks to split, decentralized blockchain platforms protect members against hold up, but hinder coordination, given that adaptation decisions are ultimately decentralized. The current solutions to improve coordination, based on “premining” cryptocoins, taxing members and incentivizing developers, are insufficient. For blockchain to fulfill its promise and out-compete centralized firms, it needs to develop new forms of “soft” decentralized governance (anarchic, aristocratic, democratic, and autocratic) that allow networks to avoid bad equilibria.