Blockchain & the End of the Firm: Why Are Firms Needed?

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SUMMARY

The discussion centers on the transformative potential of blockchain technology in reducing transaction costs, particularly in multilateral contracts, which could challenge the necessity of firms. It asserts that firms exist primarily to minimize transaction costs, and with blockchain's capabilities, traditional corporate structures may become obsolete. The conversation also highlights the challenges faced by cryptocurrencies like Bitcoin, including security issues and the failure rate of exchanges, which raises questions about the practicality of decentralized financial systems.

PREREQUISITES
  • Understanding of blockchain technology and its applications
  • Familiarity with transaction cost economics
  • Knowledge of cryptocurrency market dynamics
  • Awareness of multilateral contracting principles
NEXT STEPS
  • Research the implications of blockchain on transaction cost economics
  • Explore multilateral contracting models in decentralized systems
  • Analyze the security challenges faced by cryptocurrency exchanges
  • Investigate the role of firms in a blockchain-driven economy
USEFUL FOR

Economists, blockchain developers, financial analysts, and anyone interested in the future of corporate structures and transaction systems.

EnumaElish
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Blockchain is much touted to be the next coolest idea happening right now: https://www.weforum.org/agenda/2016/06/the-blockchain

The idea seems to be lower transaction (e.g. contracting) costs. Which are huge. (Between 5-10% of total project cost according to a world bank estimate.) So blockchain's use for multilateral contracts is a radical innovation.

A corollary is, firms (e.g. corporations, but also nonprofits) are no longer needed. Put simply, an economic firm is a mechanism to minimize transaction costs. You could say "the extent of firm is determined by the level of transaction costs" and it would be an apt summary.

The Economist said:
FOR philosophers the great existential question is: “Why is there something rather than nothing?” For management theorists the more mundane equivalent is: “Why do firms exist? Why isn't everything done by the market?”
http://www.economist.com/node/17730360

Also see http://www.sjsu.edu/faculty/watkins/coase.htm among others.

OTOH, remember bitcoin?

Wikipedia said:
Despite the fourfold increase in the number of merchants accepting bitcoin in 2014, the cryptocurrency did not have much momentum in retail transactions
https://en.m.wikipedia.org/wiki/Bitcoin

Thoughts?
 
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Physics news on Phys.org
Enforcement?
 
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Courts? Arbitration?
 
Firms include nonprofits like schools. In a multilateral contracting economy, parents could multilaterally contract with instructors to teach children, and the instructors could multilaterally contract with "classroom rentals." Every semester. Or every 5 years. And no one would need a "school." Public schools may be preserved for basic education, but afterwards it would all be multilateral contracts between parents, instructors, and real estate owners.
 
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I thought that Bitcoin forked because it couldn't keep up with the transaction rate.
 
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wired.co.uk said:
A study of the Bitcoin exchange industry has found that 45 percent of exchanges fail, taking their users' money with them.

Those that survive are the ones that handle the most traffic -- but they are also the exchanges that suffer the greatest number of cyber attacks.

Computer scientists Tyler Moore (from the Southern Methodist University, Dallas) and Nicolas Christin (of Carnegie Mellon University) found 40 exchanges on the web which offered a service of changing bitcoins into other fiat currencies or back again. Of those 40, 18 have gone out of business -- 13 closing without warning, and five closing after suffering security breaches that forced them to close. Four other exchanges have suffered serious attacks but remain open.
http://www.wired.co.uk/article/large-bitcoin-exchanges-attacks
 
I can't see keeping my money on a flash drive nor the basic idea of anarchy as being appealing to me. Such ideas will always be counterculture stalwarts and never adopted by the rest of us.
 
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A lot of the people who were in favor of anarchy changed their minds after Mt. Gox failed - then there were loud calls for government intervention.
 
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Vanadium 50 said:
A lot of the people who were in favor of anarchy changed their minds after Mt. Gox failed - then there were loud calls for government intervention.
And even then, the idea of an institution to hold your money and conduct transactions for you doesn't sound very anarchistic to me. Sounds a lot like...a bank. Except without interest, insurance, related services, customer service or oversight. Yeah, sounds awesome! :rolleyes: Take that, Mr. Man!
 
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