The people’s behavior has been a field of study for economists. They study how we make decisions, how and what affects our individual and collective behavior. They study how institutions have used human behavior to make theories and rules that facilitate trade, legal systems markets. Now a fundamentally different technological institution is developing that will revolutionize how we exchange values. That is block chain.
Block chain is in fact the continuation of the human story. As humans it is our endeavor is to lower uncertainties between people so that the exchange of value is smooth. The hunter gatherers traded mostly within their communities with some informal constraints like social repercussions/violence. Then when the society developed with time and the trade routes were expanding to long distances then we developed more formal institutions like governments, banks, corporations which regulated and monopolized things. These institutions managed trade as the level of complexity and uncertainty grew. Personal trades had to be routed through one or more of these institutions. When the internet came these things became online. Now we have the Amazon, Alibaba and other market intermediary that acts as middle man to facilitate trade.
Block chain is a technological innovation that decentralizes database and stores records of all kinds in a peer to peer network. It is just like a register which keeps record of who owns what, what he transacts and with whom. Cryptography is used to record these transactions and it get locked in blocks of data which are further securely linked to each other, again with cryptography. This way an immutable record of data is created which cannot be forged. This way no one controls it. It’s somewhat like the Wikipedia. We can see the Wikipedia and track the changes made in it with time and even create a new wiki. Wikipedia is just a data infrastructure. Block chain is also an open source infrastructure where many data can be stored like crypto currency, legal records, land records, financial transactions, contracts, certificates and many more. Here you can see the owner of that asset, its location, the changes in ownership and value. This way block chain reduces the uncertainty.
We have basically three types of uncertainties which we encounter in our daily life-
• Not knowing whom we deal with.
• Not able to see the sequence of transaction.
• Not able to do anything if something goes wrong.
In the first case suppose I want to buy a mobile phone from eBay or other such sites then we look for who is the seller. Does he have a verifiable identity, are the reviews good and original etc. Our identities are fragmented but block chain will allow us to create an open platform where any attestation by an individual will be recorded. This will help create a user controlled portable identity of everyone. It means we can create a profile that will selectively reveal our attributes that will facilitate a trade of value.
In the second case suppose you are going to send me the mobile through mail. I would like to know that I will be getting the same product that I saw on the website and some record of the process of sending. Products these days pass through various vendors working on a horizontal supply chain which may not be so cohesive. What is the proof that I will be getting an original product with original components? So block chain can create a shared data chain across non trusting entities.
In the third case suppose I do not receive the mobile, then I should get a refund. Here block chain allows writing a code that binds a contract between parties without the requirement of a third party. In this case it would be like an escrow where until all the conditions are met the funds are not released.
A lot of human economic activity can get automated with least human intervention and manipulation. The block chain will keep the mutual distrust to the minimum. All the uncertainties can be flattened out without the requirement of an institution controlling it.
Block chain has the capability to disrupt some industries and are already doing it in some cases-
• Banking and payments
• cyber security
• supply chain management
• Online betting game and casino
• Networking and IOT
• Insurance
• Ride sharing and private transport
• Cloud storage
• Charity
• Voting
• Government functioning
• Public benefit and social security
• Health care data management
• Energy management
• Online music
• Retail shopping
• Real estate
• crowd funding
• Any industry dealing in data and product transactions
and last but not the least- crypto currency.
Great examples ,but how blockchain can ensure I received goods I ordered or returned same goods back? Post tracking number won't guarantee that. If this is work paid via blockchain, who can ensure quality? With all hope for smart contracts, is there a good example where it works without major risk and automated? Judge one clear example...
Thank you