The latest Geneva Report on the World Economy assesses the role blockchain technology can play in the financial sector and beyond. Assessing its core mechanism and its applications - in particular, Initial Coin Offerings and crypto-exchanges - the authors discuss the potential costs and benefits both within the financial context and beyond, providing details of a host of relatively unknown experiments that are under way. The authors explain how the possibility of substantial savings might lead to the erosion of large existing rents. They also list the many challenges that must be solved before the technology is actually adopted. In particular, the decentralized process through which transactions of all sorts can be verified requires absolute trust. Crypto-currencies provide strong incentives by offering the crypto-currency itself, in effect buying in the "miners". Blockchains must find other ways. This is one reason why current experiments limit access to known users, occupying a mid-ground between centralised and fully decentralised exchanges.
Despite its infancy, blockchain technology presents an opportunity to fundamentally transform the way financial markets work. The challenge is to reduce the cost of trust, to protect against criminal interference - money laundering and terrorism, for instance - to ensure that that the technology is appropriately adopted, utilised and governed. When and if these problems are solved, blockchains could provide enormous economic, social, and political benefits to society.
