Blockchain Disruption and Smart Contracts

Abstract

Blockchain technology provides decentralized consensus and potentially enlarges the contracting space using smart contracts with tamper-proofness and algorithmic executions. Meanwhile, generating decentralized consensus entails distributing information which necessarily alters the informational environment. We analyze how decentralization affects consensus effectiveness, and how the quintessential features of blockchain reshape industrial organization and the landscape of competition. Smart contracts can mitigate informational asymmetry and improve welfare and consumer surplus through enhanced entry and competition, yet the irreducible distribution of information during consensus generation may encourage greater collusion. In general, blockchains can sustain market equilibria with a wider range of economic outcomes. We further discuss antitrust policy implications targeted to blockchain applications, such as separating consensus record-keepers from users.

Simple versus Optimal Contracts

“…Both of these examples fall under the umbrella of the hidden action principal-agent model, arguably the central model of contract theory, which in turn is an important and well-developed area within microeconomics. 2 Perhaps surprisingly, this area has received far less attention from the theoretical computer science community than auction and mechanism design, despite its strong ties to optimization, and potential applications ranging from crowdsourcing platforms [23], through blockchain-based smart contracts [14], to incentivizing quality healthcare [8]. The model.…”

The Framework of Consensus Equilibria for Mining-Pool Games and Related Stability of Gap Games Behaviors in Blockchain Ecosystems

“…Furthering the study on different situations related to smart contracts for different kinds of digital business activities under the Blackchain with associated consensus' incentives (called "blackchain economy") should be one of the most important things in era of big data. We also note that recently some issue and problems related to topics in fintech have been studied by a number of scholars, for example, the dynamic equilibria under blockchain disruption was initially discussed by Cong and He [18], topics surrounding blockchain-based accounting and assurance was outlined by Dai and Vasarhelyi [20], and other related areas of interest issues were discussed by Narayanan et al [50]. Moreover a number of issues and problems in Finteh have been recently addressed by Goldstein Finally, we like to share with readers that as our goal in this paper is to show how the new notion called "Consensus Equilibria" for Mining-Pool games can be used to study the impact for the stability for Blockchain ecosystems when miners from mining-pool may have gap behaviors, the general framework of Mining-Pool Games is assumed to be with the homogeneity for cost structures and with symmetry of information for all miners.…”

“…We know that under the Nakamoto consensus protocol introduced in Year 2008 [49], one key issue is to find a set of rules (for consensus) to encourage agents (miners from mining pools) to follow rules truthfully under the corresponding (consensus) protocol which may be formulated as preference mappings under the framework of abstract economy models (see Yannelis and Prabhakar [68], Yuan [70]) and references wherein), thus it is very important to study the stability of Blockchain consensus in terms of the existence for equilibria of miners (from mining pools) to follow the so-called "LCR" (also see the discussion in Section 3 below) while with or without occurring of forks for blockchain of Bitcoin ecosystems. Of course, some other issues needed to be considered are possible collusive equilibria (see Saleh [56] and reference wherein) and their behavior related to smart contracts, or dynamic equilibria under blockchain disruption as initially discussed by Cong and He [18], and other issues such as emerging blockchain-based accounting and assurance outlined by Dai and Vasarhelyi [20], discussed by Narayanan et al [50], and also see Saleh [56] and references wherein for the study of these questions.…”

“…We note that mining pool games were extensively studied by Bonneau et al [12], Eyal [26], Eyal and Sirer [27], Kroll et al [40](see also Carlsten et al. [15], Kiayias et al [39], Sapirstein et al [57] and references wherein), smart contracts were discussed by Cong and He [18], and finally move toward blockchain-based accounting and assurance given by Dai and Vasarhelyi [20] and many others. But one critical issue still remaining is: "if it is possible to have a general consensus to lead the Mining-Pool Game stable (see the meaning in details below) in supporting the Blockchain ecosystem running?…”

“…The work of this paper is as follows: We first discuss a new concept called "Consensus Game" (CG) with motivation from the mechanism design for the blockchain in financial technology under the consensus incentives introduced by Nakamotob [49] (see also Biais et al [7], Cong and He [18], Narayanan et al [50], Nyumbayire [53] and related references wherein). Starting from results by Zhao [72] to Yang and Yuan [69] where a number of existence results have been established for a general game, while our paper mainly captures the consensus idea of blockchain consensus in Fintech, and the work of Yang and Yuan [69] plays an important role in modelling the Blockchain in Fintech.…”