Perspective Chapter: Reexamining Coase’s Transaction Costs Paradigm in the Context of Blockchain Technology and Smart Contracts

Abstract

This paper introduces blockchain-based smart contracts and Decentralized Autonomous Organizations (DAOs) as compelling alternatives to conventional corporate structures. Coase’s pioneering work in the 1930s posited that the decision to organize transactions within a firm hinges on whether it is more cost-effective than executing them in the open marketplace. However, if these transactions can be conducted more efficiently in the marketplace without the need for a traditional firm, that becomes the preferred approach. The advent of blockchain-based smart contracts, along with the adoption of numerous self-executing smart contracts, has the potential to significantly reduce the dependence on traditional firms. Coase’s theorem was contingent on the magnitude of transaction costs, and if smart contracts can substantially diminish these costs, facilitating the emergence of DAOs, the original rationale for forming a firm may no longer apply when considering the blockchain paradigm.