The old question ‘Is it in the database?’ will soon be replaced by ‘Is it on the blockchain?’ – William Mougayar
Blockchain economy is a term signifying a move towards cryptocurrencies and digital ledger systems and focuses on technologies like bitcoin and blockchain. It is a replacement for the system of traditional hard currencies and maintaining ledger systems physically.
Blockchain technology was a result of the Bitcoin revolution. The blockchain is an ingenious invention of a group of people known by the pseudonym Satoshi Nakamoto, whose real identities are still unknown. It provides a transparent and readable path for bitcoin and other financial assets and aims towards digital tracking for financial assets. The technology is actually a distributed ledger that keeps track of transactional data in a secure, verifiable and permanent manner. The three pillars of blockchain technology are decentralization, transparency and immutability.
Oliver Williamson and Ronald Coase (who won a Nobel Prize in 1991) established that contracts are at the heart of economic and business organization. It is here that the blockchains have the most revolutionary implications.
Blockchains have their uses in what is being called ‘RegTech’ meaning the application of technology to the traditional regulatory functions of auditing, compliance and market surveillance. Firms and governments use blockchain to make their work more efficient and reliable. Governments can use the immutability of the blockchain to guarantee that property titles and identity records are accurate and untampered. With proper permissions and rules in place, consumers and citizens can have more control and access over their data.
Smart contracts on the blockchain allow for contractual agreements to be automatically and securely executed. Smart contracts can eliminate an entire class of work that maintains, enforces and confirms that contracts are executed – accountants, auditors, lawyers and much of the legal system but these contracts are limited by what can be specified in the algorithm.
Blockchain potentially cuts off the middleman from various transactions. It promotes transparency as it clearly shows how money moves between different hands. No central authority is required to validate the accuracy of transactional records. Trust is established and maintained through consensus within a peer to peer (P2P) network. The consensus algorithms that are used to validate the accuracy makes blockchain less vulnerable to fraud and cyber crimes.
The lack of intermediaries lowers the transaction cost, allowing people to operate in markets which was earlier dominated only by large firms and it allows businesses to operate in sectors where earlier only the government could operate. A possible application of blockchain in the banking system is that it would allow depositors and shareholders to monitor the bank’s reserves and lending subsequentially eliminating informational asymmetries between them and the bank management resulting in an increase in confidence among people.
It also makes market discipline possible. The role of regulators will be reduced as it will be limited to certifying that the blockchain is correctly and securely structured.
Oracles are trusted entities that convert information into data that can be processed by a smart contract. They provide a link between the algorithmic world of the blockchain and the real world. Increased focus should be on developing better and more powerful oracles which will boost the use of blockchain technology.
Blockchain will cause large scale unemployment as it will replace a lot of auditing and legal firms. There might be apps developed in the future which will render the application of blockchain to ledgers unresponsive thereby causing huge disruption. One of the largest barriers for consumer blockchain is the inaccessibility of a wallet to the end customer as they are confusing and difficult to access as a result of which the main purpose of the wallet is confined to trading cryptocurrencies.
Blockchain and associated technological changes will massively disrupt current economic conditions. How that will unfold is unclear at the moment. The method of trial and error will have to be used to resolve uncertainty. No doubt great fortunes will be made and lost before we know exactly how these disruptions will unfold.
Over the last three months, we have realized that there is a general lack of connectivity and data exchange in our global supply chain. Considering the fourth Industrial Revolution we are living in, it is quite shocking. Any doubts about the value of blockchain platforms and technology to improve the transparency of business has been wiped them away by the prevailing pandemic. Blockchain is supporting efforts around the globe to battle the virus. The technology is helping us to ship medicines from pharmaceuticals to areas of the world stricken by Covid-19. Additionally, it is facilitating cash flow management for startups and ensuring timely payments for the products. It’s even helping consumers track their orders thereby assisting them to improve their quality of life under lockdown conditions.
In April 2020, the National Development and Reform Commission of China, which is responsible for drawing up policies and strategies for the direction of Chinese economy, reported that blockchain will join other emerging technologies such as cloud computing, artificial intelligence, Internet of things (IoT) in supporting the systems China uses to manage the flow of information in the coming years.
Despite the impact of Covid-19, the global economy is expected to expand by 2.4% in 2020 and blockchain technology can play a huge part in boosting the global economy due to its multifaceted application. The transparency and accessibility of blockchain platforms to improve the resilience of supply chains will also be critical to getting the recovery underway in the world beyond the Covid-19 crisis.
The sharing economy has disrupted traditional transportation, hospitality, media and finance industries by allowing entrepreneurial minded individuals to monetize unused or underutilized assets through P2P transactions. Estimates show that the sharing economy will grow from $15 billion in 2014 to $335 billion in 2025. The sharing economy is dependent on the blockchain revolution since it propagates trust.
An alliance of companies, popularly known as the Internet of Things (IoT), has been brought about to work on creating a system of standards for global protocols and a system of standards (or a common language) for everyone to use when building on top of the blockchain.
The Industrial Revolution ushered in a world where business models were predicated on hierarchy and financial capitalism. The Blockchain Revolution will see an economy dominated by human capitalism and greater individual autonomy.
Welcome to the future.
Author- Nishika, An Economics Hons. student at SRCC