Is Blockchain Hype, Revolutionary, or Both? What We Need to Know

Will blockchain technology revolutionize the economy, or is it mostly hype? Blockchain is a decentralized protocol for creating and running distributed ledgers that makes it possible to track assets, from land to music to intellectual property to tomatoes to bitcoins, cryptographically without a centralized controlling authority. In principle, the technology holds out the promise of a reliable, trustworthy way of recording asset ownership and transfers in countries with corrupt or otherwise inefficient institutions. Even in countries with reliable institutions, blockchain may provide a method of recording transfers that are otherwise not valuable enough to track cost-effectively with traditional mechanisms. The potential economic gains are enormous. Yet, the underlying economic and institutional problems are generally harder to solve than simply putting assets on a blockchain. The last step between humans and machines seems to be blockchain's weakest link, where error, corruption, rent-seeking, and other incentives can impede economic efficiency. This essay asks a series of questions about blockchain, implications for institutions and future research. How do we think about gains in economic efficiency from this new technology at the margin? How does the hype for blockchain compare to past new technologies? Is blockchain a response to corruption?