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

AI Thread Summary
Blockchain technology is recognized for its potential to significantly reduce transaction costs, particularly in multilateral contracts, which could revolutionize how businesses and nonprofits operate. The discussion highlights that firms exist primarily to minimize these costs, raising questions about the future necessity of traditional corporations in a blockchain-driven economy. Philosophical inquiries about the existence of firms parallel existential questions in philosophy, suggesting a shift towards market-based solutions. Despite the initial hype surrounding cryptocurrencies like Bitcoin, challenges remain, including limited retail adoption and security issues, as evidenced by the high failure rate of exchanges. The conversation reflects skepticism about the practicality of decentralized systems, especially after notable failures like Mt. Gox, which led many to reconsider the need for regulatory oversight and traditional banking services. The potential for multilateral contracting in education is mentioned, envisioning a future where parents and instructors engage directly without the need for schools, although concerns about enforcement and security persist.
EnumaElish
Science Advisor
Messages
2,346
Reaction score
124
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?
 
Last edited:
Physics news on Phys.org
Enforcement?
 
  • Like
Likes EnumaElish
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.
 
Last edited:
I thought that Bitcoin forked because it couldn't keep up with the transaction rate.
 
  • Like
Likes EnumaElish
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.
 
  • Like
Likes EnumaElish
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.
 
  • Like
Likes russ_watters, Pepper Mint and EnumaElish
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!
 
  • Like
Likes mheslep, Vanadium 50 and EnumaElish

Hot Threads

Recent Insights

Back
Top