In October 2017, the largest bank in the United States, JPMorgan Chase, quietly revealed that a small network of competitors had been secretly testing a way to send payments to each other using blockchain, the technology first popularized by bitcoin. Emma Loftus, the bank’s head of global payments, said the blockchain platform, which promises to simplify the process of complying with global regulations by moving the transactions to a shared ledger, could reduce the time required using the current payment rails from “weeks to hours."

Eleven months later, that small group of banks, dubbed the Interbank Information Network (IIN), had swelled to 76 members, including its founding partners, the Royal Bank of Canada and the Australia and New Zealand Banking Group, and international banking giants such as Banco Santander, Société Générale, Mizuho Bank, and the Commercial Bank of Africa.

The consortium was just the latest in a litany of blockchain groups looking to leverage the network effects of moving a wide range of their workflows to a shared, distributed ledger. JPMorgan and Santander had previously been members of another distributed ledger consortium, called R3, which has raised $107 million to build a series of interconnected networks across industries. Still other IIN members are working with Ripple, a venture-backed startup with $16 billion worth of the XRP cryptocurrency at its disposal; Hyperledger, a nonprofit that supports a number of blockchains, and the Enterprise Ethereum Alliance, which is working to ensure that businesses building on both the public ethereum blockchain and permissioned alternatives can work together.

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While the explosion of members joining these consortia has become a clich'e among many in the industry, seen as an easy way to get media coverage, it turns out there is a little-known economic principle powering the phenomenon, according to a research paper published today by blockchain startup Prysm. Called "hold-up," the principle dictates that when an individual invests in a group project, that investment is worth more as part of the group than outside it, giving others bargaining power equal to the investment.

Like an old-fashioned bank robbery, the unlucky investor can essentially be "held up" for the value of the funds and other resources invested in the group and forced into undesirable situations, discouraging participation in the consortium at all and undermining even the greatest potential benefits.

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But blockchain lets consortia organizers move both the governance processes behind the way these groups make decisions and the data each member provides to a shared, distributed database, without requiring that they hand over control of the actual data itself, where it could be easily copied and drained of its value, argues Stephanie Hurder, a Prysm cofounder and one of the report's authors. As a result, competitors linked together via a blockchain are free to invest in common goals, and if they choose to leave the group in the future they can take their data with them as easily as one moves a bitcoin.

“Each business has sort of its secret sauce which it doesn't want to share,” says Hurder, who has a Ph.D. in economics from Harvard University and is a visiting scholar at USC’s Center for Physical Systems and the Internet of Things. “But then there's a lot of benefits for sharing data that's non-trade secrets, and if people can successfully not only get over the hold-up problem, but also successfully implement these consortia, we'll see a lot of value created.” The research company Gartner estimates that the business value locked up in these blockchain consortia and elsewhere in the industry will reach $3.1 trillion by 2030.

While economists at Prysm Group, the University of Chicago and elsewhere have only recently begun studying the potential impact of blockchain on hold-up, those with experience building blockchain consortia are already seeing it play out in the real world.

Today at Consensus, a conference hosted by industry news site CoinDesk, a number of consortium builders from JPMorgan, Johnson & Johnson and the World Economic Forum will speak about the impact of hold-up on their own work and how they are working to overcome it.

“The solution we have resolved is helpful for the whole network,” says Oliver Harris, JPMorgan's blockchain boss and head of crypto-asset strategy. In conversation with Forbes, Harris started by focusing on the limitsof blockchain to help competitors reach consensus. Even before looking at the technology itself, Harris says, competitors in any industry need to identify a common problem to solve. In the case of JPMorgan's IIN, that problem was the weeks it can take foreign correspondent banks to send each other money.

But even after competitors identify a common problem, that doesn’t stop the blockchain and distributed networks themselves from competing, according to, Thomas Pizzuto, the global director of medical giant Johnson & Johnson’s emerging technology and supply chain. This competition too can result in a form of hold-up, he says.

As others in the medical industry, from insurance providers to medical records managers, are rapidly joining blockchain consortia being gathered by IBM, venture-backed Chronicled and others, Johnson & Johnson has been noticeably absent. While the company, currently valued at $371 billion, is a member of a blockchain working group with the GS1 standards body, Pizzuto says it has had difficulty aligning the short-term benefits of joining larger groups with the potential long-term risks of being locked into a single network. “We’ve encountered the hold-up problem,” says Pizzuto. “Not so much who are the partners, but who is bringing everyone together.”

Beyond questions of finding a problem common to all competitors and concerns about being locked up in the blockchain networks themselves, beating hold-up relies on overcoming what Ashley Lannquist, World Economic Forum blockchain project co-lead, calls the free-rider problem.

In addition to working at the WEF’s Center for the Fourth Industrial Revolution, helping central banks research crypto, and exploring the public ethereum blockchain, Lannquist is a cofounder of the Mobility Open Blockchain Initiative (MOBI), which brings the auto industry together to explore how sharing data about driver habits could create safer driving conditions and lead to better fuel economy.

With members including BMW, GM, Ford, Honda, and others all in various stages of collecting driver data, Lannquist says one of the most important hold-up concerns going forward will be about the amount and quality of data provided. Companies with a lot of high quality data to share might be less inclined to do so if companies with less data gain equally. “The governance design for the consortium is what will address hold-up and other collective action problems,” says Lannquist. “You need to design in governance elements to ensure there’s fair use.”

To help tap into blockchain's potential value, the report's author, Stephanie Hurder co-founded Prysm Group in 2018, with fellow Harvard economist, Cathy Barerra. The New York company is not disclosing its financials, but says it does not expect to raise a round of venture capital. Instead, the company is supporting itself with revenue charged for consulting services provided by Nobel Prize winning economist, Oliver Hart, who originally defined the hold-up concept, former Microsoft chief economist Preston McAfee, and others. The startup is just the latest of a new breed of consulting firms, including SmartContract.com, Datarella, and Fae, working with enterprises, governments and startups to develop smart contracts that are both more complete than traditional agreements and overcome long-term concerns of hold-up.

The paper, “Can Blockchain Solve the Hold Up Problem for Shared Databases?" identifies three main causes of hold up: assets that are collectively owned and therefore difficult to account for, contracts that fail to account for every eventuality of these complicated business relationships, and most importantly, consortia-specific investments that are worth less if a member leaves. To overcome these concerns, the paper's authors advocate that consortia creators identify past causes of hold-up in their industry and code smart contracts that account for them. The paper concludes with several recommendations for overcoming hold-up, most importantly, that data be structured in a way that is readable both on or off a blockchain, making it easier to not only integrate with other consortia, but leave them.

“If I leave the consortium, and I technically own the data that I contributed,” says Hurder. “But I can't read it anymore because it's been converted to some strange format, that's really terrible for me.” Hurder and Barerra will be presenting the paper on stage today at Consensus, along with a framework for helping competitors more effectively work together.