For hundreds of years, economists have studied human behavior: how we make decisions, how we act individually and in groups, and how we exchange value. They’ve looked at the legal structures, corporations, and marketplaces that help us do business. However, a new technological institution called the blockchain will profoundly alter how we exchange value. That’s a relatively strong claim to make. As humans, we seek to reduce uncertainty about one another to trade value. When humans were still living in hunter-gatherer societies, we only traded within our village structures. We developed more formal organizations like banks for currency, governments, and companies as our civilizations became more complicated, and our trading routes became more remote. These institutions assisted us in managing our commerce as unpredictability and complexity increased and our control decreased. We eventually put these same institutions online thanks to the internet. We created platform marketplaces similar to Amazon, eBay, and Alibaba, simply speedier organizations that operate as middlemen to let people conduct business. Institutions are a mechanism for reducing uncertainty in society and connecting and exchanging various types of value. How did it become possible? It did with the help of blockchain technology!
What Do You Know About Blockchain Technology In Economics?
Blockchain technology is a decentralized database that uses a peer-to-peer network to register assets and transactions. It’s a public database of who owns and transacts what. Cryptography is used to secure the transactions, and over time, the transaction history is stored in blocks of cryptographically connected and encrypted data. This generates an unchangeable record of all transactions on the network. This gets me to my argument about how Blockchains reduce uncertainty and, as a result, have the potential to alter our economic systems drastically. Learn more about blockchain. “What is blockchain technology, and how does it work?”
Before understanding how blockchain deals with uncertainties, you should know the kind of uncertainties we face, including not knowing who we’re dealing with, not having visibility into a transaction, and not having recourse if things go wrong.
Blockchain Technology Dealing With Uncertainties
Authentication with Blockchain Technology
So let’s take the first example, not knowing who we’re dealing with if I want to purchase a television on eBay. The first thing I’ll do is look up who I’ll be buying from. Is this person a power user? Do they have a lot of positive feedback and ratings, or do they have no profile? Reviews, ratings, and checkmarks are examples of today’s attestations to our identities, which we utilize to reduce doubt about who we’re dealing with. However, the issue is that they are highly fragmented. Consider how many different profiles you have. We can construct an open, worldwide platform to keep any attestation about any individual from any source using blockchain. This allows us to build a portable identity that the user controls.
Transparency with Blockchain Technology
The second kind of uncertainty we frequently encounter is a lack of transparency in our interactions. Assume you’re going to ship that TV to me. I want some level of openness. I want to know that the product I ordered is the same one that will arrive in the mail and that there is a record of how it arrived at my house. This is true for gadgets like smartphones and for a wide range of commodities and data, including medicine, high-end items, and any other data that we don’t want to be tampered with. Many businesses, particularly those that make complex products such as smartphones, have the challenge of managing several vendors across a horizontal supply chain. All of the persons involved in creating a product do not have access to the same database. Because they don’t share the same infrastructure, tracking how a product evolves isn’t easy. We can construct an ordinary reality between nonrusting entities using the blockchain. As a result, all of these vendors and enterprises may engage with one another utilizing the same database without trusting one another. It means that we can have a lot more transparency for consumers. We can see a real-world object’s digital certificate or token move through the blockchain, gaining value as it goes.
Reliability with Blockchain Technology
The last uncertainty we frequently encounter is reneging, which is one of the most open-ended. What if you don’t send the television to me? Is it possible to receive my cashback? Blockchains enable us to write code, or binding contracts, between individuals and then guarantee that those contracts will be fulfilled without the intervention of a third party. So, in the case of the smartphone, you might consider escrow. You’re paying for the television, but you don’t have to release the funds until you’re entirely certain that all of the requirements have been met. One of the fascinating ways that blockchain reduces our uncertainties, in my opinion, is that it allows us to collapse institutions and their enforcement to some extent. It means that a lot of human economic activity can be collateralized and automated. Human intervention can be pushed to the edges, where data is transferred from the actual world to the blockchain.
Now, don’t think that the blockchain is the magic solution for all problems, even though the media has claimed it will end global poverty, solve the counterfeit drug problem, and possibly save the rainforest. The truth is, this technology is still in its early stages, and we’ll need to see a lot of experiments, many of which will likely fail before we fully comprehend all of the applications for our economy. However, many people work on this, ranging from financial institutions to technological firms, start-ups, and colleges. This is not solely a matter of economic evolution. It’s also a computer science breakthrough.
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