Blockchains and the boundaries of self-organized economies: Predictions for the future of banking

Uses economic theory to explore the implications of the blockchain technology on the future of banking. We apply an economic analysis of blockchain based on both New Institutional economics and public choice economics. Our main focus is on the economics of why banks exist as organizations, and how banks are then impacted by technological change that affects transactions costs. Our core argument is that blockchains are more than just a new technology to be applied by banks in the same way that computers and the internet have driven significant improvements in banking technology, and after the adoption of which banks more or less remain the same. Instead, we argue that blockchains compete with banks as organizations, and enable banking transactions to shift out of hierarchical organizations and back into the market. Blockchains are a new institutional technology that will fundamentally re-order the governance of the production of banking services. The upshot is that while banking itself may not fundamentally change, banks might. Explores this implication through broader political economy lens in which banking moves out of organizations and deeper into markets. As blockchain technologies work through banking, at the margins of measurement, monitoring and new forms of automated governance, they will enable a deeper process of institutional evolution to begin to unfold.