Is Blockchain the Next Step in the Evolution Chain of [Market] Intermediaries?

Abstract

The blockchain is a decentralized solution for handling transactions where we are concerned (among other aspects) with the accuracy and verification of transactions. One of its main promises is to eliminate the need for centralized entities or intermediaries and legal enforcement. Rather than trusting self-interested human intermediaries, the blockchain provides an alternative that relies on transparent computational protocols (Werbach 2018). In this paper, we delve into this broker-less claim and analyze whether the blockchain needs an intermediary to allow for widespread access to its functionality and whether the blockchain itself is an intermediary. The latter would turn the blockchain into a new type of middleperson that constitutes a shift in trust from humans or traditional agents to computer code. In other words, the next step in the evolution chain of intermediaries from humans to machines. The overall goal of this paper is to get the discussion started on the relationship between the blockchain and intermediaries so that we can think of plausible policy, governance, and regulatory measures to address the shortcomings and increase the opportunities for the widespread adoption of the blockchain technology in its different areas of impact. We begin by providing an overview of the workings of the blockchain before shifting our focus to an economic analysis of blockchain, where we argue that the economics literature has yet to explicitly consider blockchain as a transformative intermediary. We then explore situations in which the blockchain acts as a middleperson, as well as those where it requires an intermediary. We conclude by reflecting on the different issues that the blockchain-intermediary link entails in the policy domain.