Blockchain and Economy
Despite all its long-term benefits for the economy, the blockchain technology is just at the very beginning of its technological cycle. Bitcoin is the first and most famous case, where this technology found its application. Nowadays, a blockchain exists apart from Bitcoin, as different companies and private developers are constantly creating more and more new solutions based on the blockchain technology. The IBM Corporation supports it and tries to develop this technology by all available means.
Due to a blockchain, all the human economic activities can rebuild. Many people find it hard to perceive this technology without thinking about Bitcoin, but while other areas of blockchain implementation appear, the situation will change. Interestingly, the financial services area is just one of the niche scenarios for blockchain utilization. In fact, the possibilities of this technology are much wider. Several cases of blockchain implementation by modern companies apart from finance and Bitcoin can serve as an example.
For instance, the EverlLeger Company uses a blockchain in the supply network to confirm the source of origin in the diamond trade. There is a possibility to use this technology, creating the system for valuable things safekeeping – the Assetcha.in startup is dealing with this. The Midasium Company uses a blockchain to facilitate quality agreements conclusion in the housing rent area on the real estate market.
We are trying to clarify the blockchain terminology, as this term usually designates something similar to a distributed ledger. That is true – many companies do work with this technology to conduct financial calculations (for example, Ripple), but, as we have already said, there are many other possibilities. For example, Guardtime uses a blockchain to ensure data integrity. Banking transactions are also trending if it is possible to say so: the R3CEV consortium which includes 43 banks starts working on the private blockchain technology dealing with banking transactions.
This technology is able to ensure trust in the network using no centralized administration, and that is the basis of all blockchain operation methods. The Hyperledger project, about which we have already written on our blog, aims at creating an inter-branch open standard.
Decentralization – why is it necessary?
Centralization has always been and still remains the main organizational principle of economics and society since the agrarian revolution times. With the population growth, people had to take decisions which benefited the whole society and not just several individuals, families, or clans. This kind of centralization dynamics is also operative in the economic area. Larger companies with a great number of customers are prone to vertical integration and function centralization, striving to increase efficiency and reduce costs. Economic centralization is the most efficient organizational principle in cases when communication and operative costs are high. However, such centralization is gradually changing, and this will have far-reaching consequences for the social organization. The Internet has led to a sharp reduction in communication costs. A blockchain will do the same with operative costs.
The blockchain technology stands a good chance to become the most significant democratizing force in history since it does not require any central authority participation. The blockchain implementation and, consequently, the trust decentralization have a much stronger potential than it is commonly believed at the moment. In a wide range of industries and activity areas, such as accounting, legal services, real estate, and e-commerce, business models have been created, based on trust between a buyer and a seller. In older industries, legislation codifies this trust, providing an access barrier for potential competitors and protection from “newbies” entering the market. In its turn, a blockchain is a low-cost way for any company which stands in as an intermediary to enter the market.
The Internet allows compiling the content and sending it to anyone, skipping the distributor participation. It will reduce the marginal communication costs to almost zero. A blockchain provides an economic infrastructure allowing both physical and digital assets completion and sending them to the right addressee without resorting to centralized administration. A blockchain reduces the marginal operative costs to almost zero, making, say, selling a house as simple as a blog subscription micropayment. A blockchain provides a scalable business model for everyone with access to the Internet.
Second-generation economic paradigm
Traditional industries start evolving faster with the appearance and development of the blockchain technology. Be it e-commerce, real estate market, or legal services, blockchain starts to appear everywhere. Based on this technology, Amazon.com provides logistics and consulting services and even next day delivery.
Due to the new technology, it is possible to do without intermediaries. For example, working with Uber, Airbnb, or eBay, blockchain services provide the users with the possibility to work together with resources, exchange them, and perform direct operations. All these features are signs of the dawning of the age of the real “share economy” which is also called the “participation economy.”
According to experts, blockchains allow the possibility to monetize any kind of activity, even a small one. Paying a counselor for providing an access to a 30-minute phone session is a good example. Getting a key to access the genetic data utilization service is another example.
Blockchain possibilities are practically unlimited in the modern world. The widespread implementation of this technology will eventually result in the economy and society restructuring. Developers are now given a carte blanche because they will create applications, experimenting with the blockchain technology.
A blockchain and “smart contracts” allow getting inexpensive legal services due to standardization of many services, including legal. A blockchain can also facilitate electronic voting procedures, as well as other formalities implementation and services provision avoiding the least possibility of fraud.
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