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

In summary, blockchain is much touted to be the next coolest idea happening right now. It is seen as a way to reduce transaction costs, which are seen as a way to reduce the need for firms. Bitcoin forked due to its inability to keep up with the transaction rate, but the surviving exchanges are those that handle the most traffic. It seems that the main appeal of blockchain is that it eliminates the need for an institution like a bank.
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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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  • #3
Courts? Arbitration?
 
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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
 
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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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What is blockchain and how does it relate to the end of firms?

Blockchain is a decentralized digital ledger that records transactions and information in a secure and transparent manner. It eliminates the need for intermediaries and provides trust without the need for a central authority. This technology has the potential to disrupt traditional firms by facilitating peer-to-peer transactions and reducing the need for hierarchical structures.

How does blockchain impact the role of firms in the economy?

Blockchain has the potential to greatly impact the role of firms in the economy. It allows for more efficient and cost-effective transactions between individuals and businesses, reducing the need for firms to act as intermediaries. This could lead to a more decentralized economy, where firms are no longer the primary economic actors.

What are the potential benefits of the end of firms due to blockchain?

The end of firms due to blockchain technology could bring numerous benefits. It could lead to more efficient markets, as transactions can occur directly between individuals and businesses without the need for intermediaries. It could also reduce costs for consumers, as intermediaries often add to the final price of goods and services. Additionally, it could promote innovation and competition, as barriers to entry into markets may be lowered.

Are there any potential drawbacks to the end of firms due to blockchain?

While the end of firms due to blockchain has many potential benefits, there are also some potential drawbacks to consider. It could lead to job displacement, as traditional roles within firms may no longer be needed. It could also create challenges for regulation and enforcement, as there may not be a central authority to oversee transactions and ensure compliance with laws and regulations.

What is the future of firms in a world with blockchain technology?

It is difficult to predict the exact future of firms in a world with blockchain technology. However, it is likely that firms will have to adapt to the changing landscape and find ways to incorporate blockchain technology into their operations in order to remain competitive. Some experts believe that firms will become more decentralized and operate in a more fluid and collaborative manner, leveraging blockchain to facilitate transactions and information sharing.

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