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What can blockchain do and cannot do?

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  • Zhong Xu
  • Chuanwei Zou

Abstract

This paper studies the economic functions of blockchain. First, by explaining blockchain technologies from an economic perspective, it introduces the Token Paradigm to summarize mainstream blockchain systems, discusses the true meanings of consensus and trustlessness in the blockchain field, and analyzes the functions of smart contracts. Next, it categorizes major blockchain applications according to how they use tokens and discusses relevant economic problems such as tokens’ monetary features, tokens’ impacts on blockchain platforms, blockchain’s governance functions, and the efficiency and security of blockchain systems. Finally, it discusses the concept of Blockchain as a Financial Infrastructure (BaaFI), which is represented by central bank digital currencies (CBDC) and global stable coins.

Suggested Citation

  • Zhong Xu & Chuanwei Zou, 2021. "What can blockchain do and cannot do?," China Economic Journal, Taylor & Francis Journals, vol. 14(1), pages 4-25, January.
    • Handle: RePEc:taf:rcejxx:v:14:y:2021:i:1:p:4-25
    DOI: 10.1080/17538963.2020.1748968
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    References listed on IDEAS

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    1. Huberman, Gur & Leshno, Jacob D. & Moallemi, Ciamac, 2017. "Monopoly without a monopolist: An economic analysis of the bitcoin payment system," Bank of Finland Research Discussion Papers 27/2017, Bank of Finland.
    2. Budish, Eric B., 2018. "The Economic Limits of Bitcoin and the Blockchain," Working Papers 279, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    3. repec:zbw:bofrdp:2017_027 is not listed on IDEAS
    4. Eric Budish, 2018. "The Economic Limits of Bitcoin and the Blockchain," NBER Working Papers 24717, National Bureau of Economic Research, Inc.
    5. Gandal, Neil & Hamrick, JT & Moore, Tyler & Oberman, Tali, 2018. "Price manipulation in the Bitcoin ecosystem," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 86-96.
    6. Huberman, Gur & Leshno, Jacob & Moallemi, Ciamac C., 2017. "Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin Payment System," CEPR Discussion Papers 12322, C.E.P.R. Discussion Papers.
    7. Joshua S. Gans & Neil Gandal, 2019. "More (or Less) Economic Limits of the Blockchain," NBER Working Papers 26534, National Bureau of Economic Research, Inc.
    8. Lin William Cong & Ye Li & Neng Wang, 2021. "Tokenomics: Dynamic Adoption and Valuation [The demand of liquid assets with uncertain lumpy expenditures]," The Review of Financial Studies, Society for Financial Studies, vol. 34(3), pages 1105-1155.
    9. Christian Catalini & Joshua S. Gans, 2016. "Some Simple Economics of the Blockchain," NBER Working Papers 22952, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Gupta, Somya & Pandey, Dharen Kumar & El Ammari, Anis & Sahu, Ganesh P., 2023. "Do perceived risks and benefits impact trust and willingness to adopt CBDCs?," Research in International Business and Finance, Elsevier, vol. 66(C).

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