Viewpoint: Turning uncertainty into certainty, blockchain has changed our economic system

Published on 1 Months ago   181 views   0 Comments  

Author: Bettina Warburg

Article compiled by: block Unicorn

Source: Chris (twitter)

This article is a written record of Bettina Warburg's wonderful description of blockchain and its impact on the world economy on tedsummit in June 2016.

For centuries, economists have been exploring people's behavior: how we make decisions, how we act individually and collectively, and how we exchange value. They also studied how to promote trading institutions, such as legal systems, companies and trading markets. However, there is a new trading technology that will fundamentally change the way we exchange value. It is called "blockchain".

Now, this is a very bold statement, but if you don't bring anything else from this speech, I hope you remember that although the blockchain technology is relatively new, it is also a continuation of a very humanized story. That's the story. As human beings, we try to reduce the uncertainty between each other so that we can exchange value.

Now, this is a very bold statement, but if you don't understand anything from this speech, I hope you remember that although blockchain technology is relatively new, it is also a continuation of our human story. As human beings, we will find ways to reduce each other's uncertainty so that we can trade.

So far, one of the first people to explore the use of institutions as an economic tool to reduce our uncertainty about each other and be able to trade is the Nobel economist Douglas North. North died at the end of 2015, but he created the so-called "new institutional economics". What he said about the system is just formal rules like the Constitution and informal constraints, such as bribery. These systems are the lubricant that keeps our economic wheels running, and we can see this in the course of human history.

If we recall the era of our hunting gathering economy, we only trade within our village structure. We have some informal restrictions, but we use violence or social repercussions to force all our transactions. As our society becomes more and more complex and our trading routes become more and more distant, we have established more formal institutions, such as money banks, governments and companies. These institutions help us manage our transactions when uncertainty and complexity increase and when our control decreases. Finally, through the Internet, we put these same institutions online. We have established platform markets such as Amazon, eBay and Alibaba, which are just faster institutions to act as intermediaries and promote human economic activities.

As Douglas North saw, institution is a tool to reduce uncertainty, so that we can connect and exchange various values in society. I believe that we are entering a further and fundamental change in the way we interact and trade, because for the first time, we can reduce uncertainty not only through political and economic institutions, such as our banks, our companies and our government, but also through technology.

So what is blockchain? Blockchain technology is a decentralized database, which is a point-to-point network to store user assets and transaction information. It is basically an open recording system, recording who owns what and who trades what. Protect transactions through cryptography. Over time, the transaction history is locked in data blocks, and then these data blocks are linked together and protected through cryptography. This will create a record that will never be tampered with and cannot be forged, recording all transactions through this network, and this record will be copied to every computer using this network.

It is not an app, nor is it a company. I think its description is closest to Wikipedia. We can see everything on Wikipedia. It is a constantly changing and updated composite face. We can also track these changes on Wikipedia, and we can create our own wikis because they are essentially just a data infrastructure. Wikipedia, which is an open platform, can store text and images, and the update of these data changes over time. You can think of blockchain as an open infrastructure for storing multiple assets. It stores the custody history, ownership and location of assets (such as digital currency bitcoin) and other digital assets (such as intellectual property ownership). It can be certificates, contracts, real-world objects, or even personal identity information. Of course, blockchain has other technical details, but at its core, this is how it works. It is this public information center that stores transactions and replicates them in the network, so it is very secure and difficult to tamper with.

This leads to my view on how blockchains can reduce uncertainty and how they promise to fundamentally change our economic system. Therefore, uncertainty is a very important term in economics, but I think blockchain can play a role in almost all our daily transactions through three forms of uncertainty. We are faced with uncertainty, such as not knowing who is trading with us, not knowing about a transaction, and having no recourse if something goes wrong.

Let's look at the first example. I don't know who we are facing. For example, I want to buy a second-hand smartphone on eBay. The first thing I have to do is check who I buy from. Are they super users? Are they highly rated or do they have no personal data at all? Comments, ratings, marks: These are all proof of our identity. We are now pieced together to reduce the uncertainty about who we are dealing with, but the problem is that they are very scattered. Think about how much personal data you have. Blockchain allows us to create an open global platform on which to store any authentication from any individual from any source. This allows us to create a user controlled portable identity. This is not just a personal data, it means that you can selectively disclose your different attributes to promote trade or interaction. For example, by disclosing the existence and signed encrypted certificate of these details, the government has issued you with your ID card, or you are over 21 years old. Having this portable identity in the real and digital world means that we can conduct all kinds of human transactions in a new way.

I have talked about how blockchain reduces the uncertainty of who we trade with. The second uncertainty we often face is the lack of transparency in our interactions. Just say you want to send me that smartphone. I want some degree of transparency. I want to know that the products I buy are the same as those mailed to me, and have records of how they arrive at me. This applies not only to electronic products such as smartphones, but also to many kinds of goods and data, such as drugs, luxury goods, and any data or products we don't want to be tampered with.

Many companies, especially those that produce complex products such as smartphones, face the problem of managing all these different suppliers in a horizontal supply chain. All these people who make products don't have the same database. They do not use the same infrastructure, so it is difficult to see the development of products over time transparently.

Using blockchain, we can create a shared reality between entities that do not trust each other. I mean, all these nodes in the network don't need to know or trust each other because they can monitor and verify the chain. Think back to Wikipedia, which is a shared database. Even if it has multiple readers and multiple authors at the same time, it has only one truth. So we can use blockchain to create it. We can create a decentralized database, which has the same efficiency as monopoly without really creating central authority. All these vendors, all types of companies, can interact using the same database without mutual trust. For consumers, this means that we can have more transparency. As real-world objects move, we can see their digital certificates or tokens flow on the blockchain, thus adding value. In terms of our visibility, this is a new world.

I have talked about how blockchains can reduce our uncertainty about identity and how they can change our understanding of transparency in long-distance and complex transactions, such as in the supply chain. The last uncertainty we often face is the most open, that is, breaking our promise. What if you don't send me your smartphone? Can I get my money back? Blockchain allows us to write code and binding contracts between individuals, and then ensure that these contracts will be confirmed without third-party executors. If we look at the example of smart phones, you may think of third-party hosting. But you don't have to pay in advance until you can prove that all the conditions have been met.

I think this is one of the most exciting ways for blockchain to reduce uncertainty, because it means that to some extent, we can destroy institutions and their implementation. This means that many human economic activities can be mortgaged and automated, and many human interventions are pushed to the edge, that is, information is transferred from the real world to the blockchain.

I think what may disappoint Douglas North about the use of this technology is that what makes it work and what makes the blockchain secure and verified is mutual distrust between us. Therefore, instead of slowing down all uncertainty and requiring institutions such as banks, governments and enterprises, we can harness all these collective uncertainty and use it to cooperate and communicate more quickly and openly.

Now, I don't want you to think that blockchain can solve all problems, although the media say it can end world poverty, solve the problem of fake drugs, and maybe save the rainforest. The fact is that this technology is still in its infancy. Before we really understand all the use cases of our economy, we need to see a large number of experiments happen and may fail. But there are a lot of people doing this, from financial institutions to technology companies, startups and universities. One reason is that this is not only an economic evolution, but also an innovation in computer science.

Blockchain gives us the technical ability to create records of human transactions, currency transactions, various digital and physical assets, and even our own personal attributes in a new way. So to some extent, they become a technical institution, which has many benefits of the traditional institutions we are used to in society, but it does this in a decentralized way. It does this by transforming many of our uncertainties into certainty.

So I think we need to start preparing, because what we are about to face is a decentralized, autonomous institution that plays an important role in the world.

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