By Giovanna Massarotto
In this article, I will briefly review my work on blockchain and antitrust as a way of regulating digital markets, demonstrating how blockchain and decentralized finance (DeFi) are inherently connected to the principles of antitrust law and can work synergistically in driving innovation by pursuing economic freedom in a digital economy. This work was presented at the 2024 UBRI Connect conference at the University of Zurich on September 10, 2024.
Blockchain, the technology underlying decentralized finance (DeFi), should spark curiosity among antitrust scholars mainly because antitrust law seeks to foster innovation by promoting the creation of new markets and the development of emerging technologies which, as economists like Joseph Schumpeter argue, lies at the heart of competition. For instance, blockchain can disrupt the financial markets subject to antitrust scrutiny by changing the ways we transact and fulfill Joseph Schumpeter’s idea of creative disruption. Also, the pursuit of economic freedom has driven the development of both antitrust law and blockchain technologies, as both share the goal of decentralizing power and fostering open, competitive systems.
1. Blockchain Can Rein in Big Tech Companies
A primary antitrust issue in the digital economy is how to address monopolization concerns related to the so-called Big Tech companies, including Google, Amazon, Apple, Facebook (Meta), and Microsoft. The problem is that digital markets are subject to network effects; thus, these markets tend to concentrate without necessarily anticompetitive conduct, which is required to enforce antitrust law. Second, antitrust law pursues consumer welfare and Big Tech companies often offer increasingly advanced products free of charge or at a lower price making it difficult to show the consumer harm. This problem has been coined by the present Federal Trade Commission (FTC) chairwoman Lina Khan as Amazon’s Antitrust Paradox.
The current artificial intelligence wave has brought antitrust law to a crossroads, challenging its ability to address monopolization concerns in fast-moving data-driven markets. For decades Big Tech platforms have collected data that fuel large-scale AI algorithms, building databases that are increasingly challenging to replicate. Thus, an important question addressed is: Can blockchain technologies assist antitrust law in enforcing competition in the digital economy more effectively? I think the answer is, yes.
Blockchain was introduced with Bitcoin, establishing a decentralized peer-to-peer financial system—it is DeFi maximum expression—designed to bypass the concentrated power of traditional banking systems, which collapsed in 2008. Rather than having banks verify payment transactions, participants in the Bitcoin network (which is open to anyone) verify each transaction, before storing it in the distributed ledger known as blockchain. Only when the majority of the participants in the Bitcoin network agree on a transaction, the transaction is stored in the Bitcoin blockchain. The privacy of users is protected through a public key cryptographic system that encrypts Bitcoin transactions. The owner of a bitcoin holds a private key to decrypt its transactions and claim its bitcoin, while anyone can download the bitcoin ledger by increasing transparency.
The same blockchain technology can be employed to verify and store “virtually everything of value.” Thus, blockchain has the potential to disrupt Big Tech digital platforms.
Blockchain offers decentralized peer-to-peer platforms in competition with Big Tech centralized platforms. Blockchain platforms permit people to bypass intermediaries, such as Google and Amazon, leveraging on a network of participants that work similarly to a buyer group. Participants in the blockchain network collaborate to access goods and services usually provided by intermediaries, benefiting from network effects that are unattainable individually. Blockchain can decentralize users’ data by storing their data in multiple computers and not a single one by increasing security and providing the same access to data to all the blockchain participants. Privacy can be preserved through encryption. Therefore, a blockchain system can enable each Internet user to have equal access to data running on the Internet and potentially control all their data in a decentralized manner. But that’s not all.
2. Blockchain Technologies as Antitrust Enforcement Tools
In my scholarship, I further explored how antitrust agencies can leverage blockchain infrastructure and smart contracts to do what they regularly do more efficiently.
A blockchain infrastructure can enhance transparency in enforcing antitrust laws and increase people’s trust in government action. Because everything is tracked in a blockchain, antitrust agencies can adopt blockchain to control and verify a company’s conduct in markets that raise antitrust concerns and share a consistent view with other government agencies to increase coordination and efficiency. Additionally, a primary issue in enforcing antitrust law concerns the costs of monitoring companies’ compliance with antitrust remedies, which are typically regulatory and require companies to periodically submit compliance reports to the antitrust agency. Computer programs that run on a blockchain—known as smart contracts—can be instructed to monitor companies’ compliance with antitrust remedies more effectively. Additionally, smart contracts can be used to oversee the effectiveness of antitrust remedies checking, for example, the price of goods and services in markets where remedies are enforced.
Antitrust does not really need a new framework to tackle competition challenges in a digital context and address Amazon’s Antitrust Paradox. What it does need are new tools, including blockchain, to advance antitrust and be able to interpret competition in a digital economy effectively.
3. Antitrust and Blockchain-DeFi: A Shared Commitment to Economic Freedom
Interestingly, the creator and movement underlying Bitcoin (DeFi) and blockchain were driven by the goal of achieving economic freedom after the collapse of the banking system in 2008 through a decentralized peer-to-peer privacy-protected financial system. Economic freedom is the antitrust core goal. Antitrust law originated in the United States at the time in which critical industries, such as oil, were controlled by a few powerful companies like Standard Oil engaging in trust agreements and monopolization practices. Economic freedom meant free interactions of individuals in the marketplace, which, at that time, were felt to be hindered. Senator Sherman, for whom the Sherman Antitrust Act of 1890 is named, recognized antitrust law as “a bill of rights and charter of liberty.” In other words, the driving forces behind antitrust and the creation of the blockchain technology underlying Bitcoin share the same ultimate goal.
Antitrust as a law and blockchain as a technology can synergistically advance economic freedom in the digital economy—blockchain and DeFi embody the essence of antitrust core values.
Giovanna Massarotto is Academic Fellow at the Center for Technology, Innovation & Competition at the University of Pennsylvania Carey Law School. The views and ideas expressed in this post are those of the author and do not necessarily represent those of the Wharton School or the Wharton Initiative on Financial Policy and Regulation.