Distributed ledgers and the governance of money

Abstract

Distributed ledgers promise to enable the classical vision of money as a universal transaction record. But is it ever optimal to update a ledger through decentralized consensus? Analyzing an exchange economy with credit, we show that centralized updating is optimal when long-term rewards are more valued, minimizing redundant validation costs and maximizing economic surplus. Decentralization becomes preferable under weaker intertemporal incentives and when validators are drawn from market participants. We show how competing ledgers – anonymous or identified, permissioned or permissionless – can achieve socially optimal outcomes even in low-trust environments. Our framework provides a foundation for designing robust and efficient ledger systems.