Where do Blockchains Fit in the History of Financial Institutions?

Abstract

In this essay I present an interpretation of economic history through the prism of financial institutions, and analyze the blockchain technology in this context. The role of institutions has gone from defining and enforcing property rights to the more active role of preventing externalities and driving the whole economy out of crises. With two exemples (the Central Clearing Platform regulation and central bank communication) I show that such an active role can introduce inefficiencies related to the cost of trust. I propose an interpretation of blockchains as "autonomous institutions" and show how they can alleviate this cost of trust. In terms of the Coase theorem, their use reduces the cost of transacting thereby making institutions less relevant. If blockchains ever reach broad use, traditional institutions will likely have to adapt. I conclude that we could be on the verge of an important change in the institutional landscape.