Economic Analysis: Theory and Practice

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Using smart contracts in contract activity: Transaction costs and limitations

Vol. 18, Iss. 8, AUGUST 2019

Received: 15 May 2019

Received in revised form: 21 June 2019

Accepted: 30 July 2019

Available online: 30 August 2019


JEL Classification: B41, D23

Pages: 1478–1493

Karpychev V.Yu. Nizhny Novgorod State Technical University named after R.E. Alekseev (NNSTU), Nizhny Novgorod, Russian Federation

ORCID id: not available

Subject The article investigates transaction costs of contract activities, using the smart contract modern digital technology.
Objectives I examine special features of transaction costs related to the use of smart contracts, define primary sources of transaction costs and factors affecting them, and focus on developing a new approach to their reduction.
Methods The study employs methods of systems approach, functional modeling, classification, expert and functional cost analysis, etc.
Results I offer a functional model of a smart contract. Using a model, I look at the structure, content and nature of transaction costs arising during contractual activities involving such contracts. The paper introduces the smart cost concept. I also describe the main limitations of the smart contract technology affecting the structure and size of transaction costs, and show how the latter change compared to traditional contract costs. I suggest a new technique for transaction cost evaluation, integrating the modern methodologies for the study of business processes. Finally, I discuss prospects and conditions for introducing the smart contract technology in contract activities. The findings may be applied both in theory and in practice for economic analysis of transaction costs associated with the development and usage of smart contracts.
Conclusions Prospects for the extensive use of smart contracts in contract activities are determined by the possibility of reducing their distinctive smart costs. These arise from technological and semantic limitations of methods and platforms of smart contract design. To overcome current constraints, it is crucial to have special academic research on technology in economics.

Keywords: digital economy, smart contract, functional modeling, transaction cost, activity-based costing


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