The popularity of blockchain technology and cryptocurrencies has grown in recent years, but there is still disagreement about their value in economic interactions.
In this paper, I examine the value of a blockchain for an entrepreneur who creates
a network. The entrepreneur can decide to retain control of the network with a
centralized implementation through a regular company, or surrender control over
the network with a decentralized implementation through the blockchain. The
network’s users experience a locked-in effect. I show that a decentralized implementation of the network is both (i) preferred by the entrepreneur and (ii) a Pareto
improvement, if and only if the size of the locked-in effect is sufficiently large.