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Blockchains and the Boundaries of Self-Organized Economies: Predictions for the Future of Banking

  • Trent J. MacDonald
  • Darcy W. E. Allen
  • Jason PottsEmail author
Part of the New Economic Windows book series (NEW)

Abstract

This chapter uses economic theory to explore the implications of blockchain technology on the future of banking. We apply an economic analysis of blockchains based on both new institutional economics and public choice economics. Our main focus is on the economics of why banks exist as organizations (rather than a world in which all financial transactions occurring in markets), and how banks are then impacted by technological change that affects transaction costs. Our core argument is that blockchains are more than just a new technology to be applied by banks, but rather compete with banks as organizations, enabling banking transactions to shift out of centralized hierarchical organizations and back into decentralized markets. Blockchains are a new institutional technology—because of how they affect transaction costs in financial markets—that will fundamentally re-order the governance of the production of banking services. We then explore this implication through broader political economy lens in which banking moves out of organizations and deeper into markets. We examine this as a form of institutional economic evolution in which the boundary of catallaxy—i.e., a self-organized economy—is enlarged, at the margin of the banking sector. Such institutional competition enables evolutionary discovery in the institutions of banking.

Keywords

Blockchain Bitcoin Cryptocurrency New Institutional Economics Austrian Economics Catallaxy 

Notes

Acknowledgments

This chapter draws heavily on, and in part reproduces, material previously published in Davidson et al. (2016), and also MacDonald (2015a).

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Copyright information

© Springer International Publishing Switzerland 2016

Authors and Affiliations

  • Trent J. MacDonald
    • 1
  • Darcy W. E. Allen
    • 1
  • Jason Potts
    • 1
    Email author
  1. 1.School of Economics, Finance & MarketingRMIT UniversityMelbourneAustralia

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