Smart contracts are self-executing programs that are coded with the terms of agreement between a buyer and a seller. They run when predetermined conditions are fulfilled. Smart contracts automate transactions to meet two main goals: reducing time loss and participant involvement. 


Smart contracts

Transactions are self-contained within a shared ledger that dictates how tokens can be created and earned. This allows those involved in these transactions to dictate the true state of ownership over time. 

Self-Contained Transactions on the Blockchain

Due to the ledger becoming the means of verification for transactions the costs of verification by third parties no longer applies.


Low Costs of Transactions on the Blockchain

Financial service fees that are usually bundled such as credit card use fees and credit verification fees would be unbundled and replaced by the ledger which would serve as the verification for the transaction.


Unbundling of Services on the Blockchain

Blockchain allows the verification of transaction attributes and enforcement of contracts without the need for third-party involvement due to its use of a public ledger. 

No Need For Third Party Verification on the Blockchain

All transaction information including the participants involved and the goods exchanged are stored on a public distributed ledger. This public ledger can be verified very cheaply in real-time by all market participants. 


Costless Verification on the Blockchain

- No Need for Third-Party Verification
- Costless Verification
- Smart Contracts
- Unbundling of Services
- Lowering Costs
- Self-Contained Transactions

Indiana University

University of Minnesota - Twin Cities

The costs related to verifying information of past transactions, transaction attributes, and current ownership of digital assets on the blockchain.

Costs of Verification on the Blockchain

Catalini, C., & Gans, J. S. (2020). Some simple economics of the blockchain. Communications of the ACM, 63(7), 80-90.

Some Simple Economics of the Blockchain

Advantages of Cost Verification on the Blockchain

- Last Mile Issues
- Online and Offline Connection is Not Easily Feasible
- Costless Verification is Hard to Achieve in the Real World

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