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

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Discussion Overview

The discussion revolves around the implications of blockchain technology on the existence and necessity of firms, including corporations and nonprofits. It explores the potential for lower transaction costs and the concept of multilateral contracting as alternatives to traditional firm structures. The conversation touches on the philosophical question of why firms exist in a market-driven economy and considers the role of enforcement and security in blockchain applications.

Discussion Character

  • Exploratory
  • Debate/contested
  • Conceptual clarification

Main Points Raised

  • Some participants suggest that blockchain could significantly reduce transaction costs, potentially making firms unnecessary as economic mechanisms.
  • There is a proposal that in a multilateral contracting economy, traditional institutions like schools could be replaced by direct contracts between parents and instructors.
  • Concerns are raised regarding the enforcement of contracts in a blockchain environment, with questions about the roles of courts and arbitration.
  • Some participants mention the challenges faced by Bitcoin, including its transaction rate issues and the high failure rate of exchanges, which raises doubts about the reliability of cryptocurrency systems.
  • There is skepticism about the appeal of storing money in decentralized systems, with some arguing that such ideas are unlikely to gain widespread acceptance.
  • Participants note a shift in attitudes towards anarchy in the cryptocurrency community following the failure of exchanges like Mt. Gox, leading to calls for government intervention.
  • Critiques are made regarding the notion of anarchy in financial systems, suggesting that the absence of traditional banking services would not be a viable alternative.

Areas of Agreement / Disagreement

Participants express a range of views on the necessity of firms in the context of blockchain technology, with no consensus reached. There are competing perspectives on the feasibility and desirability of decentralized systems versus traditional firms.

Contextual Notes

The discussion highlights various assumptions about the effectiveness of blockchain technology, the nature of transaction costs, and the role of enforcement mechanisms, which remain unresolved.

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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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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