Blockchain technology and startup financing: A transaction cost economics perspective

Saurabh Ahluwalia, Raj V. Mahto, Maribel Guerrero

Research output: Contribution to journalArticlepeer-review

32 Citations (Scopus)
6 Downloads (Pure)

Abstract

Cryptocurrencies (e.g., Bitcoin, EOS, Etherum, Litecoin, and others) are disrupting the traditional banking and financial systems. The cryptocurrencies are based on a set of technologies commonly referred to as blockchain technology. The potential effect of blockchain technology on institutional economics is profound. Already, blockchain technology-based applications in supply chain management, marketing, and finance are decentralizing and streamlining vital institutional functions. In this paper, we examine the economics of blockchain technologies as it pertains to transaction costs in startup financing. We draw upon the theory of transaction cost economics and the transactional nature of blockchain technology to propose a model to demonstrate how and why blockchain technology based applications are effective. We then apply the model to demonstrate how blockchain technology can be used to overcome many problems inherent in startup financing. For example, information asymmetry and transaction costs involved with matching an entrepreneur with an investor and the terms of the financing deal are some of the fundamental issues in entrepreneurial financing. We explain how a financing system based on blockchain technology can ameliorate the problems and lead to a more effective and decentralized entrepreneurial financing process.
Original languageEnglish
Article number119854
JournalTechnological Forecasting and Social Change
Volume151
Early online date6 Dec 2019
DOIs
Publication statusPublished - 1 Feb 2020

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