Initial coin offerings for blockchain based product provenance authentication platforms

Abstract: Blockchain is a distributed technology that supports financial operations and also helps establish a secure and trustworthy system for product provenance authentication. In the real world, blockchain based product provenance authentication (BPPA) platforms are developed to help certify products such as diamond. In this paper, we theoretically examine the initial coin offerings (ICO) project of such a BPPA platform. In the main models, we analytically build models to explore the cases without blockchain (Model NPF) and with blockchain (Model PF). We study the optimal pricing and optimal effort (for collecting product authentication information) decisions under each model. We examine the value of having the BPPA platform for both the firm and consumers. We reveal the analytical conditions governing when it is beneficial to use the BPPA platform. Then, we uncover how ICO can be used to finance the project with the launch of the BPPA platform. Finally, in the extended models and analyses, we consider the scenarios in which (i) the product's selling price is exogenous and remains the same for the cases without and with the BPPA platform, and (ii) the fixed setup cost for operating the BPPA platform and the fixed service fee charged (to the firm) are present. We find that all the qualitative insights remain valid and hence the findings derived from the main models are robust.