Journal
QUARTERLY REVIEW OF ECONOMICS AND FINANCE
Volume 84, Issue -, Pages 420-429Publisher
ELSEVIER SCIENCE INC
DOI: 10.1016/j.qref.2020.09.006
Keywords
Cryptocurrency; Blockchain; Game theory; Financial intermediation
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Despite rapid innovation in adapting blockchain technology, financial intermediation remains challenging, and integrating real-world identity information is crucial for true blockchain-native financial applications.
Despite the past decade's rapid innovation in adapting blockchain technology to new uses, financial intermediation remains elusive except in basic and highly collateralized forms. We introduce the concept of the technical frontier to delimit the kinds of interactions that can feasibly be structured algorithmically among pseudonymous agents, as on a blockchain, and show that lending and financial intermediation unlike monetary exchange - lie outside it, even in simple forms. The path forward for truly blockchain-native financial applications, therefore, must involve the integration of real-world identity information in order to disincentivize defection. We discuss several potential technologies for doing so, and conclude that such integration is possible without compromising pseudonymity, provided real-world identity is available in the breach. (C) 2020 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.
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