The Blockchain Economy: A beginner’s guide to institutional cryptoeconomics

The first major change to ledgers appeared in the fourteenth century with the invention of double entry bookkeeping. In the late twentieth century ledgers moved from analog to Digital ledgers. The Blockchain is a distributed ledgers that does not rely on a trusted central authority to maintain and validate the ledger. A Database allows for more complex distribution, calculation, analysis and tracking. A Database is Computable and Searchable. But a Digitised ledger is only as reliable as the Organisation.

The 2009 Nobel laureate in economics argued that people produce and Exchange in markets, firms, or governments depending on the relative transactions costs of each institution. The government keeps databases of citizenship and the right to travel, taxation obligations, social security entitlements, and property ownership. Firms also maintain ledgers: proprietary ledgers of employment and responsibility, of the ownership and deployment of physical and human capital, of suppliers and customers, of intellectual property and corporate privilege. 

Classical and Neoclassical economists study production and distribution of scarce resources. Institutional Cryptoeconomics studies the institutional consequences of Cryptographically secure ledgers. It focuses on the economic principles and theory underpinning the Blockchain and alternative Blockchain Implementations. It looks at game theory and incentive design as they relate to Blockchain mechanism design. In institutional Cryptoeconomics, the economy is a system to coordinate exchange, says Aaron Carroll.

The global economy faces (what we expect will be) a lengthy period of uncertainty about how facts that underpin it will be restructured, dismantled, and Reorganised. The best uses of the Blockchain have to be ‘ discovered’. Then they have to be implemented in a real world political and economic system that has deep, established institutions that already service ledgers. Some of the most fundamental principles governing our society are up for grabs.

The Internet has Revolutionised the way we interact and do business. But the Blockchain allows us to exchange differently. It is usually compared to the internet, but that is not entirely true. Blockchain can be better understood if it is compared to mechanical time.

Mechanical time opened up entirely new categories of economic organisation that had until then been not just impossible, but unimaginable.

Smart contracts on the Blockchain allows contractual agreements to be automatically, autonomously, and securely executed. A complete contract specifies what is to occur under every possible contingency. An incomplete contract allows the terms of the contract to be renegotiated in the case of unexpected events. The real gains to be made in the Blockchain revolution, we suggest, are in developing better and more powerful oracles that convert incomplete contracts to contracts that are sufficiently complete to be written Algorithmically and executed on the Blockchain.

The blockchain economy puts pressure on government processes in a whole host of ways, from taxation to regulation, to service delivery.

Investigating these changes is an ongoing project of ours. But consider, for instance, how we regulate banks.

The ability to write more complete contracts on the Blockchain means entrepreneurs and innovators will be able to maintain ownership and control of their human capital and profit at the same time. The age of human capitalism is dawning. Entrepreneurs will be able to write a valuable App and release it into the ‘ wild’, ready to be employed by anyone and everyone who needs that functionality. A designer could release their design into the ‘ wild’ and final consumers could download that design to their 3D printer and have the product almost immediately.

The blockchain is a digital, decentralised, distributed ledger.

Most explanations for the importance of the blockchain start with Bitcoin and the history of money. But money is just the first use case of the blockchain. And it is unlikely to be the most important.

It might seem strange that a ledger — a dull and practical document associated mainly with accounting — would be described as a revolutionary technology. But the blockchain matters because ledgers matter.