I always find it interesting when people who are very successful in their respective fields start to learn about cryptocurrencies. One such case is Catherine Tucker, the Sloan Distinguished Professor of Management and a professor of marketing at MIT Sloan.
I am on your excellent Work antitrust and Costless Verification: An Optimistic and a Pessimistic View of the Implications of Blockchain Technology, which was far ahead of its time, was written in 2018 and is still highly topical today. In fact, she suspects that her academic colleagues at the time thought that digital currencies were just “a straw fire”.
When I sat down to ask Catherine about the paper and the changes in the landscape that have occurred since the paper was created four years ago, I received some answers on topics that made me curious.
CoinJournal (CJ): It was quite early to write scientific papers on cryptocurrencies in 2018 – how did you first come into contact with crypto and decided to write the work? What was the first reaction of your colleagues?
Catherine Tucker (CT): As a researcher, I started working on crypto-economics issues in 2014, when I was part of the team that helped run the MIT Bitcoin experiment, where we gave $100 in Bitcoin to each MIT student.
Back then, my academic colleagues thought digital currencies were a bonfire.
CJ: Have your views on the impact of blockchain technology changed since 2018?
CT : No. Although I think that more people understand that blockchain is not Bitcoin.
CJ: In 2018, would you have expected that formal regulation around crypto would have progressed further at this stage, both in terms of antitrust law and in other areas?
CT : I think the regulation has been slow and backward-looking so far. I think we still have a lot of work ahead of us when we come up with laws that reflect the nature of crypto, rather than instead being laws that try to make crypto technologies work like previous vintages of technologies.
CJ: One area I immediately think of when I read your (excellent) paper is the central bank-issued digital currencies (CBDCs). The power this would give to either a big company (e.g. Apple, Google) or a government could be enormous – do you have any thoughts on this, especially from an antitrust perspective?
CT : Well, the central banks are already in charge of fiat currencies! And we exchange any market power on the basis of compromises in terms of stability and credibility. I don’t think this is going to be any different. I also think that in general, due to the low exchange costs, it is unlikely that a cryptocurrency sponsored by a technology company will have significant 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 influence the growing antitrust law, as discussed in the 2018 paper?
CT : Blockchain, by making things less physical and more digital, reduces switching costs, which are the traditional source of market power. So I remain optimistic.
CJ: You have written about open source code and how it is a key factor in terms of blockchain platforms and antitrust law, but do you think that many pump-and-dumps or scams are due to the fact that simple copy-paste forks of existing blockchains are so easy to set up?
CT : I think that crypto as a technology area was unusual in terms of the amount of fraud that there was. I think this is the combination of so many investments, new untested technologies and that unusually high returns have been achieved compared to other sectors of the economy. Unfortunately, this combination has led to fraud. I don’t think this necessarily reflects the ease of cheating in particular.
CJ: Since you wrote this paper, decentralized finance (DeFi) has grown rapidly in 2020. Could this have a major impact on the potential antitrust law and the control that the major institutions currently exercise over the financial markets?
CT : I am passionate about decentralized finance. If you think about it, especially in economies outside the US, banking is usually unusually concentrated and there are high exchange costs when you leave a bank. DeFi as a movement promises to change this pattern of concentration.
CJ: They write in the paper that “although the market is nascent and no cryptocurrency or blockchain project has achieved significant market power at the moment, some of the large-scale projects will have sufficient market share to influence prices and consumer welfare”. Do you think that Bitcoin’s large lead in terms of influence and market capitalization is not a significant market power, given its ability to influence the markets of all other cryptocurrencies?
CT : No. I think that as a pioneer in a sector where there are untested technologies, Bitcoin has had an advantage to attract attention. I am not aware of any exchange costs, but in particular they would mean that the large market share implies monopoly power. As many traders know, it is easy to switch between Bitcoin and other competitors.