We propose a theoretical model to measure the fundamental values of cryptocurrency and blockchain technology. Due to its secure nature, blockchain allows the transactions to be state-contingent based on highly credible state information. In an economy with adverse selection, traders have an incentive to buy assets with unknown quality by using cryptocurrency to exploit the higher security of blockchain technology. This induces the demand for the cryptocurrency or access to the blockchain platform, determining the fundamental value of these new digital innovations. We also analytically demonstrate the effect of higher security of the blockchain technology: it leads to wider spreads in prices and qualities of assets traded via blockchain protocol and the traditional cash market. As well, it has a non-linear effect on the fundamental values of the cryptocurrency and blockchain  platform, depending on the severity of underlying adverse selection. The welfare of agents is also derived, and it is shown to be collinear with the fundamental value of cryptocurrency .
 In an economy with asymmetric information, the smart contract in the blockchain protocol mitigates uncertainty. Since, as a new trading platform, the blockchain triggers segmentation of market and differentiation of agents in both the sell and buy sides of the market, it recomposes the asymmetric information and generates spreads in asset price and quality between itself and a traditional platform. We show that marginal innovation and sophistication of the smart contract have non-monotonic effects on the trading value in the blockchain platform, its fundamental value, the price of cryptocurrency, and consumers' welfare. Moreover, a blockchain manager who controls the level of the innovation of the smart contract has an incentive to keep it lower than the first best when the underlying information asymmetry is not severe, leading to welfare loss for consumers .
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We propose a theoretical model to measure the fundamental values of cryptocurrency and blockchain technology. Due to its secure nature, blockchain allows the transactions to be state-contingent based on highly credible state information.
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adverse selection, traders have an incentive to buy assets with unknown quality by using cryptocurrency to exploit the higher security of blockchain technology. This induces the demand for the cryptocurrency or access to the blockchain platform, determining the fundamental value of these new digital innovations. We also analytically demonstrate the effect of higher security of the blockchain technology: it leads to wider spreads in prices and qualities of assets traded via blockchain protocol and the traditional cash market. As well, it has a non-linear effect on the fundamental values of the cryptocurrency and
asymmetric information, the smart contract in the
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protocol mitigates uncertainty. Since, as a new trading platform, the blockchain triggers segmentation of market and differentiation of agents in both the sell and buy sides of the market, it recomposes the asymmetric information and generates spreads in asset price and quality between itself and a traditional platform. We show that marginal innovation and sophistication of the smart contract have non-monotonic effects on the trading value in the blockchain
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depending on the severity of underlying adverse selection. The welfare of agents is also derived, and it is shown to be collinear with the fundamental value of cryptocurrency
its fundamental value, the price of cryptocurrency, and consumers' welfare. Moreover, a blockchain manager who controls the level of the innovation of the smart contract has an incentive to keep it lower than the first best when the underlying information asymmetry is not severe, leading to welfare loss for consumers