The Three C’s: Identifying Economic Value in Blockchain

Image for post
Image for post
Photo by Mark Tegethoff on Unsplash

As a general purpose technology (GPT), blockchain has the opportunity to generate widespread impact across many different industries. From healthcare to supply-chain, estimates of potential value creation have been cited in the trillions of dollars. While use-cases are still being conceptualized and properly positioned, economics points to a few levers to for how this value will be generated. These are the Three C’s.

Innovations like blockchain deliver value by reducing inefficiencies.

Inefficiencies arise when parties engaging in trade are prevented from reaching the best possible collective outcome, either due to frictions such as search costs, or due to incentive problems such as free-riding or the hold-up problem.

Blockchain’s shared ownership structure can reduce inefficiencies in a wide variety of settings through three levers: Coordination, Commitment, and Control.

Image for post
Image for post

1. Coordination

2. Commitment

3. Control

The specific benefits of employing blockchain in a given setting depend on the context at hand, and the relative costs and benefits of addressing various inefficiencies. For shared databases, all three of these channels can be used to improve outcomes for participants.

In order to maximize the impact of each of these elements and prevent economic system failure, enforcement mechanisms such as those that monitor and review actors’ behavior and impose penalties may be designed so that value destroying behaviors are deterred and align stakeholder incentives are aligned.

For further reading about the principles of the Three C’s in the context of case-studies, read Prysm Group’s research report: Can Blockchain Solve the Hold-Up Problem for Shared Databases?

Written by

An economic consulting firm specialized in designing incentives and governance models for blockchain and distributed ledger technology networks.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store