I am delighted to publish a 15-video series dedicated to my book, “Blockchain + Antitrust: The Decentralization formula”. You can access all the chapters over here, and all the video transcripts over here.
In this video, I’d like to talk about different ways by which blockchain can merge, the challenges that it creates for antitrust law, and, also, the opportunities that it opens.
(1) First, let me be descriptive a bit. The subject of blockchain concentration is somehow under-documented, so I want to take a few minutes to explain the underlying mechanisms here.
There are different types of blockchain concentrations. Some are technical, others are not. Amongst technical concentrations, I want to make a further distinction between hostiles and non-hostiles concentrations.
One, hostile concentrations can take the form of forced takeovers. Here, the consensus that is used by the target is central. If the target runs on Proof of Work, a forced takeover consists in taking “control” by devoting computational power to it. This is called a building attack. Where the target runs on Proof of Stake, a “buy-out attack” may be conducted by acquiring a majority of the existing capacity. Second, hostile concentrations can take the form of bribery attacks. In this situation, a blockchain offers (manually or by smart contract) tokens to all participants of another blockchain that agree to burn their own, which means, to be concrete, to send those tokens to non-spendable addresses.
Now, let me take a minute to address the main difference between these blockchain hostile takeovers and killer acquisitions. Should blockchain users dislike the takeover, they can always fork the blockchain and recreate the original one. So… successful blockchain takeovers require a technical strategy and convincing users that it will benefit them.
Alright, on to (2) non-hostile concentrations now. They generally take the form of a chain merger in which blockchains merge their transaction histories and gather all new transactions in a single chain. These mergers come with technical issues, for example, if the two blockchains have different token caps. Here again, one needs to convince users to use the new chain, unless new mechanisms are developed in the future, such as ensuring perfect interoperability between two independent chains.
Last, there are non-technical concentrations. It covers all the mergers that do not affect the infrastructure or the governance of blockchains but include the surrounding environment, such as media, exchanges, wallets, investment funds, hardware manufacturers, analytics firms, think tanks, and foundations. For example, if a single exchange became so dominant that it captures 90 percent of exchange activities, competition law concerns would logically arise. Here, I believe that on top of analyzing the relevant markets at stake, antitrust agencies should ensure that these transactions do not indirectly reduce the competitive pressure within blockchains.
(2) OK, so, how should we analyze all that from an antitrust perspective? As you know, antitrust agencies control the operations which are changing economic entities’ control. Because blockchain is horizontal, capturing control over it is more complex than capturing the control of a firm that is exercised from the top. As I explained, it requires convincing blockchain participants to join the new chain. For that reason, I believe that antitrust agencies should focus on behavioral elements on top of structural ones. To be concrete, I propose they analyze the incentives put in place to convince these participants to join the new chain because if there are too low, the concentration will fail. On that basis, antitrust agencies will identify sufficiently robust and effective mechanisms.
Then, agencies will be required to analyze the thresholds. As I explained in the 10th video, converting tokens to express a blockchain’s turnover into a fiat currency won’t do the trick. We need to analyze the technology to understand market power.
This leads me to address the opportunities created by these questions. (1) They require agencies to analyze the technology. It may surprise you if you are not an expert in antitrust law, but existing rules of merger control do not require agencies to analyze the technology being acquired in-depth. What matters the most are the turnovers and the market shares. The technology mainly serves to define relevant markets but not as a way to analyze anticompetitive risks.
Blockchain concentrations shall push agencies to change their practice. To be specific, analyzing code may reveal some potential for growth, compatibility diversification outside one relevant market, network effects, potential consumer lock-in (or absence thereof), and technical dynamic capabilities – that is, the capacity to absorb and integrate external knowledge.
(2) And here’s my final point: blockchain can also help modernize procedures from a methodological point of view. Blockchains can facilitate exchanges between the parties and antitrust agencies. One, antitrust agencies currently suffer from the incompleteness of the information they receive. Imagine a world where companies of a specific size would be required to register their turnovers into private blockchains. They would give access to their blockchains when notifying mergers. This would provide agencies with an accurate view of markets, especially if they require all companies on the market to provide such access. Two, agencies could also require companies to centralize all information they send to various administrations in private blockchains. This would prove extremely helpful because the data in the hand of financial agencies, data protection agencies, etc., could help antitrust analysis. Three, agencies could use blockchains to centralize their data in a single shared space. This would facilitate cooperation with other agencies, at a national and international level. Fourth, smart contracts could speed up procedures by automating the request of additional information based on the one already provided by the parties. Fifth, smart contracts could automate commitments, for example, automating divestitures in case of non-compliance with behavioral remedies.
For all this to happen, several challenges will be encountered. The main challenge is the one of expertise. Implementing these solutions requires agencies to acquire the right expertise. Some have already started, which gives me a reason to be optimistic.
That is all for today. Thank you very much for listening. Take care of yourself, and, if you can, someone else too. Cheers.