1. — The new blockchain economy
Sinclair Davidson
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2. RMIT Blockchain Innovation Hub
Director:
Prof Jason Potts
Key researchers:
Dr Darcy Allen
Dr Chris Berg
Prof Sinclair Davidson
Dr Mikayla Novak
A/Prof Marta Poblet
A/Prof Ellie Rennie
Prof Julian Thomas
sites.rmit.edu.au/blockchain-innovation-hub/

3. What is a blockchain?
A blockchain is a decentralised, distributed ledger
The challenge with a distributed ledger is ensuring everyone agrees what the ledger says
Distributed ledger with central, trusted server
Distributed ledger with no central authority
In November 2008 ‘Satoshi Nakamoto’ solved the consensus problem

4. Ledger-centered view of the economy
Hard to see, because ledger technology unchanged (centralised) until 2009

5. Ledgers
Ledgers confirm identity/ ownership/ status/ exchange, map relationships
A ledger is a tool for mapping and verifying agreed facts about relationships
Ledgers are everywhere
Bitcoin has shown us that money is a ledger
Property rights are ledgers (see Hernando de Soto)
A firm is a ledger, structuring capital, labour and processes
The social security system is a ledger
Citizenship is ledger
Ledgers are about trust

6. Blockchains are distributed ledgers
When ledger technologies change, so do economies
Blockchain is not just a new general purpose technology.
Blockchain is a new institutional mechanism to organise economic activity and behaviour
Blockchains industrialise trust
Right now this is very expensive
New technology often is very expensive
Blockchains are enormously successful proof of concept around distributed ledger technology
Berg S, Davidson S, Potts J (2017) “The Blockchain Economy: A Beginner’s Guide to Institutional Cryptoeconomics”

7. Blockchains are most like…
Economics of technology (i)
Blockchains are most like…
Mechanical Time
Transistors
Excel spreadsheets
Tamagotchi Eggs
Internet (2.0)

8. Blockchains are most like…
Economics of technology
Blockchains are most like…
Mechanical Time
Transistors
Excel spreadsheets
Tamagotchi Eggs
Internet (2.0)

9. Mechanical time gave us:
Reliable watches … that when many people used them gave us …decentralised coordination … which gave us ... scheduling ... timetables ... work schedules ... planning ... industrial specialisation ... modern corporate organisation ... global supply chains

10. Economics of technology (ii)
The bitcoin blockchain might become a historical curiosity

11. New technology ≠ Innovation
Did it matter that ARPA invented the internet?
Did it matter the CSIRO invented wifi?
Does it matter that blockchains were invented for internet money?

12. Cryptoeconomics
Cryptoeconomics is the application of economic theory to blockchains and cryptocurrencies
‘Traditional’ cryptoeconomics is concerned with
Game theory
Mechanism design
Incentive structure
Consensus algorithms
Institutional cryptoeconomics is concerned with the role of blockchains
In the economy
For (and against) government
In the social system

13. Institutional cryptoeconomics
Blockchains are an Institutional technology. Blockchains lower both information costs and transaction costs.
There already exists a body of economic theory that examines the consequences of both information costs and transaction costs.
Ronald Coase (Nobel 1990) Oliver Williamson (Nobel 2009)
Blockchains are a tool for creating new economies – a new mechanism not just for facilitating trade but for facilitating markets.

14. (De)Centralised ledgers and (De)Centralised economies
Berg S, Davidson S, Potts J (2017) “Byzantine Political Economy”

15. What does this mean? Some very frightening consequences:
Massive disruption
Future for some people could be Orwellian
Firms will be nexi of short term contracts:
Teams without the need for monitors
Where will the boundary of the firm be?
Will there be a need for shareholder capitalism?
Firms can place their income statements and balance sheets on the blockchain as a smart contract that updates in real time.
What need for accountants/Auditors?
What need for corporate regulators?
Instantaneous bankruptcy.

16. What does this mean?
The welfare system could be operated as a smart contract.
Track assets, liabilities, and income in real time and adjust welfare payments in real time.
A truly global blockchained financial system:
What will the monetary authorities actually do?
Taxation implications?
Poll tax
The future of work?
Smart workers will write sub-routines for the blockchain.
Anonymous payment in wallet when used.
Superstar effects
What will aggregated inequality statistics look like?
The future of voting?

17. What are people worried about?
Privacy.
Loss of economic opportunity.
“Order 66” problem.
“Skynet”.
Erosion of established institutions:
Hierarchy.
Information intermediation jobs are all in trouble.
Jobs that facilitate trust to generate transactions are all in trouble.

18. Conclusions The blockchain is not just a tech upgrade
The blockchain is not just another general purpose technology
The blockchain is a new institutional technology that will both
Complement current organisational forms and economic activity
Substitute for current organisation forms and economic activity
There is a lot of work that remains to be done from demonstrating proof of concept to viable (profitable) products.

21. Keep up to date with our work
Twitters: @BlockchainRMIT @cryptoeconomico @chrisberg @sincdavidson @profjasonpotts