Distributed ledgers and the governance of money

Blockchain technology breathes new life into the classical analysis of money as a substitute for a ledger of all past transactions. On this view, money is a record of goods sold and services rendered. While blockchain technology involves updating the ledger through a decentralised consensus on the unique truth, the robustness of the equilibrium that supports this consensus depends on who has access to the ledger and how it can be updated. To find the optimal solution, Buterin's "scalability trilemma" needs to be addressed, so that a workable balance can be found between decentralisation, security (i.e. a robust consensus), and scale (ie the efficient volume of transactions). Using a global game analysis of an exchange economy with credit, we solve for the optimal ledger design that balances the three objectives of this trilemma. We find that, depending on dynamic incentives, either decentralised or centralised designs can be optimal, with the case for decentralisation being stronger in myopic markets.