I always find it interesting that people who are very accomplished in their respective fields start getting their heads turned by cryptocurrency. Such a case is Catherine TuckerSloan Distinguished Professor of Management and Professor of Marketing at MIT Sloan.
I found her excellent paper, Antitrust and Costless Verification: An Optimistic and Pessimistic View of the Implications of Blockchain Technology, which was way ahead of its time, written in 2018 but still very relevant today. Indeed, she assumes that at the time, her academic peers thought digital currencies were just a “flash in the pan”.
Sitting down to interview Catherine on the paper, as well as the changes in the landscape since the paper was written four years ago, I got answers on some topics that interested me.
CoinJournal (CJ): It was quite early to write academic papers on cryptocurrency in 2018 – how did you get into crypto and decide to write the paper? What was the initial reaction from your professional peers?
Catherine Tucker (CT): As a researcher, I started working on issues of cryptoeconomics in 2014 when I was part of the team that helped run the MIT bitcoin experiment where we gave $100 in bitcoin to each undergraduate student from MIT.
At the time, my academic peers considered digital currencies a flash in the pan.
CJ: Has your perspective on the impact of blockchain technology changed since 2018?
CT: Nope. Although I think more people understand that blockchain is not bitcoin.
CJ: Would you expect in 2018 that formal regulation around crypto will progress further at this point, both in antitrust and other areas?
CT: I think regulation has been slow and backward so far. I think we have work to do when we make laws that reflect the nature of crypto rather than being laws that try to make crypto technologies work like old technologies.
CJ: One area that immediately comes to mind upon reading your (excellent) article is central bank-issued digital currencies (CBDC). The power this would give to a large corporation (say Apple, Google) or a government could be enormous – any thoughts on that, especially from an antitrust perspective?
CT: Well, central banks are already in charge of fiduciary currencies! And we sacrifice all market power due to compromises on stability and credibility. I don’t think it will be any different here. I also think that in general, due to low switching costs, any cryptocurrency-sponsored tech company is unlikely to have substantial market power in the traditional economic sense.
CJ: Big tech companies have become even more powerful in recent years. Do you still believe that blockchain alternatives could theoretically offer more democratic platforms and have growing antitrust impact, as noted in the 2018 paper?
CT: Blockchain, by making things less physical and more digital, reduces switching costs that are the traditional source of market power. So I continue to be optimistic.
CJ: You’ve written about open source code and how it’s a key factor regarding blockchain platforms and antitrust, but do you think a lot of pump and dump or cheats are the result of simple copy-paste forks of existing blockchains being so easy to set up?
CT: I think crypto as a technology field has been unusual in terms of the number of scams that have existed. I think it’s the combination of so much investment, new untested technology, and there have been exceptionally high returns compared to other sectors of the economy. This combination has unfortunately led to scams. I don’t think this necessarily reflects the ease of scamming in particular.
CJ: Since you wrote this article, decentralized finance (DeFi) has exploded onto the scene in 2020. Could this have significant impacts on the potential antitrust and control that these large institutions currently have in financial markets?
CT: I am enthusiastic about decentralized finance. If you think about it, especially in economies other than the United States, banking tends to be unusually concentrated and there are significant switching costs to leaving a bank. Decentralized finance as a movement promises to change this pattern of concentration.
CJ: You wrote in the document that “while the market is nascent and currently no cryptocurrency or blockchain project has achieved significant market power, at scale, some of the projects will have sufficient market share to influence prices and consumer welfare”. Do you think that Bitcoin’s great lead in influence and market capitalization does not constitute significant market power, given its ability to displace the markets of all other cryptocurrencies?
CT: Nope. I think bitcoin as a forerunner in an industry where there are untested technologies has had an edge in attracting attention. I am not aware of any switching costs that would particularly mean that its large market share implies monopoly power. As many traders know, it’s easy to switch between bitcoin and other competitors.