Creating all-win by blockchain technology in supply chains: Impacts of agents’ risk attitudes towards cryptocurrency

Abstract

Today, blockchain technology and its cryptocurrency function are widely proposed as a tool for supply chain finance and some companies already accept cryptocurrency in business transactions. However, supply chain agents may possess different risk attitudes towards the use of cryptocurrency. In this paper, we build stylised analytical three-echelon supply chain models to examine this issue. To be specific, we consider the case in which supply chain agents can be risk neutral, risk averse or risk prone towards the volatile value of cryptocurrency. We model these risk attitudes by using the mean-risk theory. In the main models, comparing the benefits of supply chain agents as well as consumers under the cases with and without blockchain and cryptocurrency, we analytically reveal the impacts brought by risk attitudes of supply chain agents in different echelons. We find the conditions under which implementing blockchain with cryptocurrency achieves an all-win situation for all supply chain agents and consumers. Critical factors which affect the adoption of blockchain with cryptocurrency in supply chains are further investigated. In the extended models, we consider two cases: (i) The case in which “not using blockchain with cryptocurrency” has an impact on consumer utility; and (ii) there is a chain-to-chain competition. We uncover that the main conclusion remains valid and new insights are also derived.

Keywords:

• Blockchain
• supply chain finance
• risk attitudes
• cryptocurrency
• mean-risk theory

Acknowledgement

The author sincerely thanks the helpful comments by the editors and three anonymous reviewers. Their comments help improve the paper’s quality a lot. This study is supported by RGC(HK) - GRF (code: PolyU152294/16E).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 https://99bitcoins.com/bitcoin/who-accepts/ (accessed on 13 April 2020).

2 https://www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia—specifically-bitcoin/?page=3 (accessed 29 June 2020)

3 https://bitcoin.org/en/you-need-to-know (accessed on 12 April 2020).

4 https://www.business2community.com/tech-gadgets/4-risks-of-using-cryptocurrency-02092258 (accessed on 12 April 2020).

5 There are studies on blockchain which do not consider cryptocurrency, e.g., Choi (2019) and Choi et al. (2020b). This paper takes a different perspective and focal point from them.

6 Note that assuming a < 0 and the current inclusion of $\alpha >0$ are related but not the same because right now, a and $\alpha$ both exist and can be compared. If we just assume a < 0, then this will be just penalizing the use of blockchain with cryptocurrency without considering the utility changes and the respective magnitudes.

7 We consider this centralized setting with the goal of highlighting how the level of competition affects the benefits of using blockchain with cryptocurrency. To avoid diluting the focus, we do not consider the case when the two chains are different.

8 https://www.inc.com/joel-comm/3-dangers-that-could-hit-bitcoin-in-2019.html (accessed on 12 April 2020).