Most conversations about blockchain focus on technology—cryptography, nodes, consensus.
But what happens when we step back and ask a different question:

What does blockchain change economically?

In their pivotal 2016 paper, Catalini and Gans offera clear answer:
Blockchain doesn’t just eliminate intermediaries. It re-engineers the coststructure of trust.

That insight opens the door to a more strategic understanding of blockchain’s disruptive potential—not just as software, but as infrastructure for new types of markets, firms, and institutions.

Two Economic Costs Blockchain Disrupts

Catalini and Gans outline two key costs that shape economic systems. Blockchain reduces both:

1. Verification Costs

These are the costs of verifying the attributes of atransaction or asset:

• Is this real?
• Does this belong to who they say it does?
• Is it tamper-free and time stamped?

With blockchain:

• Verification is automated
• Records are publicly auditable
• The need for third-party validators (banks, notaries, auditors) is reduced

2. Networking Costs

These are the costs of facilitating coordination and exchange between parties in a network:

• Do we trust each other?
• Who sets the rules of engagement?
• How are disputes resolved?

Blockchain, through smart contracts and token incentives, offers:

• Rule-based coordination
• Built-in enforcement
• Direct peer-to-peer transactions

The result: markets that previously required central platforms (like Uber or eBay) can now be replicated on open infrastructure.

Why This Matters for Market Design

Reducing verification and networking costs isn’t just anefficiency gain—it changes what’s possible.

For example:

• You can now have micro-markets for data, energy, or bandwidth
• You can enable trustless global trade between parties who have never met
• You can build decentralized institutions without legal entities

Catalini and Gans argue that blockchain allows economic exchange in environments where institutional trust is weak or expensive. This opens new opportunities for:

• Emerging economies
• Creator communities
• Decentralized autonomous organizations (DAOs)

Use Cases That Illustrate the Theory

Here’s how the economics play out in real scenarios:

Supply Chain Auditing

Blockchain reduces verification costs across global trade. Companies can track provenance, compliance, and timestamps with less paperwork and more certainty.

NFTs and Provenance

Verification costs for digital ownership are near zero with blockchain. Buyers can prove the source, authenticity, and ownership history of digital assets instantly.

Cross-Border Payments

Networking costs—like correspondent banking layers and FX risk—are bypassed with tokenized assets and on-chain settlements.

DAO Governance

No need for legal contracts or middlemen. Token holders vote, smart contracts execute decisions, and governance runs trustlessly.

But There’s a Catch: Tradeoffs Still Exist

Catalini and Gans emphasize that blockchain doesn’teliminate all costs—it shifts them.

• Verification is cheaper, but coding smart contracts is expensive
• Coordination is easier, but governance design becomes critical
• Intermediaries are removed, but dispute resolution may be harder

Also, privacy is often sacrificed for transparency. In some contexts (e.g., healthcare or legal data), this creates new compliance risks.

Their point: adoption depends not just on what blockchain makes possible—but on whether the cost tradeoffs make sense for the specific use case.

Strategic Implications for Innovators

If you’re a builder, policy maker, or investor, this paperoffers a clear lens for blockchain strategy.

Ask this first:
Does your use case suffer from high verification or networking costs?

If yes, blockchain may unlock a better solution.

Then ask:
Do the cost reductions justify the tradeoffs in complexity, governance, and transparency?

If not, you may be better served by traditional systems—for now.

Final Thought: Blockchain as Economic Infrastructure

What Catalini and Gans remind us is that blockchain’s true innovation isn’t just in code—it’s in coordination.

• It lets strangers transact without gatekeepers.
• It lets networks govern themselves.
• It redefines who gets to design systems—and who benefits from them.

As blockchain matures, those who understand its economiclogic—not just its technical design—will be best positioned to lead.

Because the real revolution isn’t just in peer-to-peermoney.
It’s in rebuilding trust without permission.

Source

Catalini, C., & Gans, J. S. (2016). Some Simple Economics of the Blockchain. MIT Sloan Research Paper. https://dspace.mit.edu/bitstream/handle/1721.1/130500.2/3359552.pdf?sequence=6&isAllowed=y

‍