Blockchain: Global Change of Economy and Society

Why is there so much noise around this technology, which today plays at best a secondary role for the economy and society? To deal with these thoughts, you first need to ask two questions: what does this technology promise, and what is at stake?

Blockchain promises to solve two fundamental problems of today’s Internet: the ability to copy information effortlessly, which has a devaluing effect, and the trust gap that occurs when economic relations move into the digital space.

Distinguishing between the original and the copy in the network economy was previously considered impossible. It was even believed that the essence of the digital economy lies in the fact that marginal costs in the production of digital goods tend to zero, since a copy of an existing product of the same quality can be produced almost without cost. This is both an advantage and a disadvantage.

Digital materials are very easy to produce in large quantities, they are very portable and protected from wear. However, the ease of copying also creates big problems for manufacturers, since it is almost impossible to protect the status of the product as an “original”. In the case of digital currencies, the problem is compounded by the fact that creating a “copy” of the same payment is considered fraud.

Blockchain technology solves this problem by introducing the principle of scarcity into the digital sphere. As indicated on Coinmarketrate.com payments with the same amounts can never be copies of each other, since they are verified by a worldwide computer network. Thanks to this mechanism, each payment is uniquely identified and differs from other payments.

In addition, the blockchain allows you to conduct secure transactions without taking into account the identity. Thus, it is a continuation of old cultural technologies and transfers some of their characteristics to the digital economy.

Bitcoin has the word “coin” in its name for a reason: They are digital “coins”, cash. Those who collect cash should not trust the payer, but only the currency. In other words, they must trust that the banknotes are genuine and worth the amount that is printed on them. If the authenticity of a 100-ruble bill is guaranteed, it does not matter from what source it was received.

A very similar thing is observed in the case of Bitcoin. Once a Bitcoin transaction has started, the origin of the money does not matter. The question of whether a person is dealing with reliable business partners does not arise, since the system ensures interaction between partners at every stage. Thus, trust in individual participants is replaced by trust in the system, which is very similar to trust in cash. The reliability of the payment system and the monetary unit has a stabilizing and system-forming effect.

Thanks to these two aspects, which the inventor of Bitcoin, the mysterious Satoshi Nakamoto, fixed in the protocol of the Military-technical cooperation, the blockchain actually represents something like a quantum leap in the development of the digital economy.

What Blockchain Technology Wants

So what does blockchain want? As described at the beginning, this is a kind of universal log for transactions of all kinds. According to its internal logic, such technology is aimed, on the one hand, at formalizing all economic relations. On the other hand, he seeks to reduce the entire economic exchange to a documented substrate, and subordinate it to the rules of the registry. This means that blockchain is a ubiquitous technology that wants to guarantee absolute transparency of transactions, but, on the other hand, requires strictly regulated processes in economic transactions.

1. Ubiquity: The blockchain is neutral in terms of the “content” it records. Bitcoin and other cryptocurrencies are just one application out of many. Just as the World Wide Web provided a universal information space for the first time, the blockchain is a universal space for the structured display of value and value-related interactions.
2. Transparency: By recording economic transactions in a tamper-proof way, the blockchain ensures maximum transparency. Each transaction can be verified by any of the computers (node) participating in the blockchain. This means (unlike cash, whose intricate paths are ideal for laundering) – the end of the gray areas mercilessly illuminated by the blockchain.
3. Rule-based systems: Although Bitcoin was only the first real application of the blockchain, its claims to comprehensive regulation of economic transactions in all spheres are clearly traced in the so-called “smart contracts“. Indeed, the blockchain technology itself does not set any rules. Nevertheless, it allows you to apply sets of rules in the form of smart contracts to digital cards, and automatically ensure that the rights of all partners under the contract are fulfilled.

One of the possible endpoints of this blockchain logic is concretized in the vision of such blockchain masters as Vitalik Buterin, the man behind the Ethereum Foundation. Buterin dreams of companies that “own themselves”, are controlled by computer programs and conduct their business on the basis of self-executing digital contracts. “It’s like self-driving taxis that are self-registered and finance their maintenance at the expense of their income,” Buterin says.

Where will blockchain lead us?

Blockchain, it can be summarized, is aimed at a new evolutionary stage of the Internet. While the introduction of the World Wide Web in the 1990s created the Internet of information, and the emergence of the so-called “Web 2.0” in the new millennium created the Internet of social relations, blockchain stands for the Internet of values.

What specific applications are we talking about? Almost every house has one or more folders with names such as:

• Contracts
• Certificates of ownership
• Subscriptions
• Accounts
• Insurance
• Bank accounts
• Licenses
• Health insurance
• Identity cards

According to the idea, the blockchain combines all the files in the world into a universal journal. What does this mean in a specific sense?

According to this criterion, three stages of blockchain development can be distinguished, with increasing depth of intervention.

Financial Blockchain

The most obvious application of blockchain is the financial sector, since its main technological achievement is a new paradigm for ensuring the security of transactions. From the point of view of blockchain users, the financial blockchain initially promises to increase efficiency and simplify processes through greater transparency. Just one example: cash on delivery orders, i.e. cash payment upon receipt of goods, today are associated with additional difficulties and, accordingly, additional costs. The blockchain-based payment system will be able to provide unhindered and, above all, non-cash processing of COD orders.

Blockchain contracts

The second stage of blockchain development is achieved when the provision of services is associated with conditions, the fulfillment of which is verified using a technological platform. In principle, the blockchain is capable of not only verifying payments or registering property relations in an orderly manner.

Rather, it ensures compliance with contracts in an automatic mode, that is, it acts as a neutral “trust platform” that supports the rights and obligations of contractual partners. Here again, the aforementioned nature of the blockchain as an automated system of rules becomes clear.

They can also play a key role in the Internet of Things. The concept of “Industry 4.0”, which has been much talked about in recent years, is essentially based on the idea of decentralizing production and logistics processes, automating them and gradually increasing autonomy. The end point of this development will be reached when production orders will move autonomously along the value chain to the final consumer.

However, the higher the autonomy of the machines, the more important it becomes to control their actions and ensure that the corresponding system operates within its specifications. This is exactly what smart contracts are suitable for. Therefore, it is quite possible that the blockchain is the key to the implementation of ambitious concepts of the “Industrial Internet”.

Biographical Blockchain

At the third stage of development, the blockchain will fulfill its requirement for ubiquity. Then the digital daily life of each person will be displayed in the blockchain and transparently monitored to an even greater extent than today. A biographical blockchain will appear, which will freely document all life processes from the cradle to the grave. And this, to be honest, is frightening.

Of course, this state is still far away, however, it corresponds to the internal logic of the development of the blockchain described above, and its integral claim to display absolutely all spheres of human life and make them the basis of tracked transactions.

The idea comes that in the biographical blockchain everyone knows everything about everyone – the projection, of course, is intentionally exaggerated. Of course, there will be control mechanisms and legal frameworks that will allow people to selectively disclose parts of their personal information storage or their digital identity, depending on the context. However, one should not underestimate the expected pressure on a person – on the one hand, the pressure associated with participation in the biographical blockchain, maintaining one’s own digital identity and increasing one’s own digital reputation, and on the other hand, the pressure associated with the disclosure of actual information assets upon request or insistence.

Or do you have something to hide? No, but what about the right to confidentiality and privacy? The social lines of conflict are indicated here.

What’s at stake

Even if from today’s point of view there are still many technological, economic and legal issues, the blockchain principle will become the central element of the further digital transformation of our economy and society. The culture of working with blockchain has yet to be formed. Blockchain cannot answer the urgent questions that arise here for us. The biographical blockchain, in particular, clearly demonstrates the two-faced nature of this development.

In addition to increasing efficiency and increasing costs, blockchain promises, first of all, to put an end to arbitrariness and inequality. But so far, all these are just words and fantasies. Blockchain is just a tool, but we will see how it will be used over time.