David Cohen

         and

William Mougayer

         wrote a piece for Techcrunch called,

The Trust Web

      .  It’s interesting.  It’s a very informative piece on Bitcoin.  I highly recommend you click over and read it.

At it’s earliest stage, people focus on the utility value of Bitcoin as a currency.  I was no different.  The real power in Bitcoin is the blockchain.  The blockchain is decentralized.  If you are an economist that believes in classical economic theory, the blockchain is one of the most exciting developments to come along in a long time.

There are certain assumptions economists make.  One is that people are rational.  This doesn’t mean they have a clear mind all the time.  It does mean that they act in their own self interest.  People make decisions based on costs vs opportunity costs and the blockchain pushes more individual liberty down to individuals.

The blockchain will make things more efficient.  It will allocate resources better.  Variable pricing and the ability of the crowd to impact price, and allocation will eat up a lot of the dead weight loss that exists in our economy today.  It will also change the allocation of producer and consumer surplus.

Take payments for example.  In a decentralized peer to peer marketplace, I don’t have to worry about you.  There isn’t counter party risk and fear of non-performance on our agreed upon terms because the blockchain enforces them.  That means sellers and buyers can take more out of a transaction because the intermediary is less crucial. This is similar to what a clearinghouse does at a commodity exchange.  Decentralized marketplaces will allow individuals from all over the world to connect and engage in commercial transactions that were not previously enabled without an intermediary.  Recently, an $80M transfer of capital took place on the block chain.  Fee, .04 cents. That’s disruption.

The social web was supposed to bring an element of trust to the internet.  Venture Capitalist Andy Weissmanhas a blog/saying, “Real Names Be Proof”.  It hasn’t.  Does anyone care about a Klout score?  People are still able to hide behind alternative identities as if they are in some virtual reality on the social web.  This won’t be possible on the blockchain.  Having a clean reputation will help you engage better.  As in real life, your reputation won’t be controlled by you, but by how other people talk about you.

I think the blockchain has huge implications for the way independent people and entities work together.  But, I think the way the blockchain is used inside corporations to allocate assets will be highly interesting. Sociologists like Ron Burt have studied interior networks inside corporations for years.  The blockchain will bring a whole new dimension to their research.  The blockchain might even have something to say about corporate politics.

I also think that Bitcoin will have a larger effect on B2B transactions than consumer transactions at first.  Businesses will have every economic incentive to get rid of intermediaries and friction in transactions.  For most individuals in first world countries, the current cost vs opportunity costs of using Bitcoin bend in favor of keeping the status quo.  But, it will change eventually.

Less friction with the use of electronic currency is one reason to get excited about Bitcoin.  But, it’s the blockchain that will revolutionize the way commerce is done, and the way humans interact with each other.

People Focus on Bitcoin Currency, But the Magic is The BlockChain


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