School of Economics and Finance

No. 880: Corporate Capture of Blockchain Governance

Daniel Ferreira , London School of Economics, CEPR and ECGI
Jin Li , Hong Kong University, CEP
Radoslawa Nikolowa , Queen Mary University of London

January 22, 2019

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Abstract

We develop a theory of blockchain governance. In our model, the proof-of-work system, which is the most common set of rules for validating transactions in blockchains, creates an industrial ecosystem with specialized suppliers of goods and services. We analyze the two-way interactions between blockchain governance and the market structure of the industries in the blockchain ecosystem. Our main result is that the proof-of-work system leads to a situation where the governance of the blockchain is captured by a large firm.

J.E.L classification codes: G30, L13, M20

Keywords:Governance, Blockchain, Proof-of-Work, Industrial Ecosystem