Bystack Worldview (2): Blockchain Island Rules

In fact, every technological revolution will eventually appear to change the shape of social organization. In the 1990s, because of the Internet technology revolution, many thought pioneers believe that the Internet allows people to communicate and collaborate on a vast open network, which will break This kind of organization.

But then? The company has always existed.

190610 - 2

Now, it is the turn of the blockchain technology revolution, and some blockchain scholars have issued a similar "Coase question": Will the blockchain make the company disappear?

In the 1937 paper "The Essence of the Company," the economist Coase asked: "If the market is as effective as economists say, why do companies still exist? Why do entrepreneurs set up companies instead of Go directly to the market to hire contractors, out of the way to complete each task that needs to be completed?

Coase's answer is transaction costs.

Coase’s argument is that in the presence of these transaction costs, as long as the company can benefit from doing something internally, instead of asking the outsourcer to bargain, sign and execute the contract and generate transaction costs, the company will become more The bigger it is. The company will continue to expand or shrink until the company "costs to solve one thing internally" equals the cost of "outsourcing this thing in the market."

The lower the transaction cost, the higher the market efficiency, and the more small companies there will be. Using the idea of ​​blockchain, this is the wave of decentralization.

Duke University economist Mike Munger went one step further and divided the transaction costs into three types: (1) Measuring costs : the difficulty of finding and measuring the value of an asset, the quality of a service. How much; (2) Transfer costs refer to the difficulty of agreeing on contracts for goods, assets or services; (3) the cost of trust , whether your counterparty is trustworthy.

Imagine that in the past many companies deployed their own servers to develop mail systems, enterprise management systems, and customer systems. Later, cloud computing appeared, enterprise services appeared, cloud computing reduced measurement costs, server and bandwidth resources could be paid in seconds, and transfer costs were reduced. Customers only need to purchase online without having to sign cumbersome contracts offline. There is also no physical delivery of the server. The transaction cost of purchasing these services is much lower than the cost of developing and maintaining your own systems. As a result, cloud computing has become popular, and enterprise services such as cloud computing have reduced the corresponding business units of demand-side companies.

Blockchain technology is more than the Internet in terms of reducing transaction costs. Let's look at the advantages of the blockchain:

(1) Severability . The value of an asset can be accurately measured and can be almost infinitely split into economically viable granularity. The measurement cost problem has been solved.

(2) Interchangeability (Fungibility) . Blockchains allow non-interchangeable atomic assets to be converted into interchangeable bit assets, which will greatly reduce transfer costs. Take the auto trading smart contract as an example. Assume that the trading scenarios envisioned by Nick Saab are realized. Each car has a unique asset ID built in. The car or lease is in the form of a smart contract. Then the car is not bought or sold. The physical transfer of the car is required, and the ownership of the car and the transfer of the right to use can be completed by simply signing the chain. The transfer cost problem has been solved.

(3) Trustworthiness . The real chain transaction has strong trustworthiness, including three layers of self-documentation, specificity and transactional unidirectionality [1] . The most important of these is the one-way transaction. On the one hand, based on the competitive consensus of calculation, the trader can absolutely believe that the transaction behavior is irrevocable. On the other hand, after the coin-day destruction is introduced into the credit evaluation, it can be solved that Internet payment is difficult to eliminate. Brush credit problem [2] . We can trust every anonymous address as long as the corresponding transaction and credit rating on the address is reliable. If the credit of an address is good, then mathematically, this address is a trusted counterparty. You see, the last question is also solved.

So, will the company still exist in the future?

The problem still needs to be divided into two. In fact, there are two types of companies, the first type of company sells goods, and the second type of company sells services. For the former, due to the scale effect, the marginal cost of production decreases with the size of the company, and the transaction cost is reversed. If the agent can achieve the same sales performance, it is better to outsource the sales to the agent. If the logistics provider does better, then It is better to work directly with logistics companies. This will result in a smaller company size. The additive effect of production costs and transaction costs will balance the company's size at a certain location (Figure 1).

Picture 1

For the second category of companies, such as advertising, design, consulting companies, the services they sell are difficult to standardize, can not be self-replicating, customers also have a variety of personalized needs, each new project means repeated Manpower input, reusable workload is almost zero, their expansion of the company size can not lead to diminishing service costs, but also may bring additional management costs, that is, service costs increase with the company's scale. On the contrary, since the transaction itself is a service, companies that are committed to reducing the transaction costs of various industries will reduce the size of the target company, but will stimulate the expansion of its scale. At this time, the transaction cost decreases with the size of the company. of. There is also a balance between the size of a company due to the additive effect of production costs and transaction costs (Figure 2), which is mirrored to the first category of companies (Table 1).

Picture 2

Screenshot 2019-06-11 Afternoon 2.56.11

Table 1 Mirror relationship between production company and service company

Therefore, the relationship between the size of the company discovered by Coase and the transaction cost is indeed widespread, but it also has his limitations. He came to the empirical conclusions of a traditional production company such as Ford in the United States in 1933. In fact, he ignored at least two points.

First, there is no distinction between production companies and service companies. In his time, companies such as Google and Alibaba that provided related services through Internet technology did not exist, so the relationship between service companies and transaction costs was not included in the research.

Second, there is no distinction between internal and external perspectives. Websites such as Alibaba Cloud and Pig Bajie have solved the demand for cloud computing services and the demand for design services, significantly reducing transaction costs in their respective fields. As a demand side, there is no need to establish a dedicated server operation and maintenance team. There is no need to hire a dedicated designer, but only an external procurement service, which of course reduces the size of the company from an internal perspective. However, from an external perspective, as the provider of the transaction itself, it will expand to an astonishing scale due to the reduction of transaction costs.

There is a passerby interview video that is very representative, so that everyone guesses how big the size of such a company is, and almost everyone has greatly underestimated its scale. Probably in the general impression that Internet companies do not need too many people to serve hundreds of millions of people. This ignores service companies that are committed to reducing transaction costs and may grow wildly as the marginal cost of the transaction diminishes. The blockchain will obviously further exacerbate this effect.

This is also logically interpretable. For the blockchain, the marginal cost of the transaction is decremented. The credit establishment of a new address takes time to accumulate. As the transaction volume increases, credit is also accumulated. The more it attracts more transactions, the better the credit is than the ant's information hormone. The higher the credit, the easier it is for the ants (potential trading partners) who are looking for it to be attracted by this path, and the marginal cost of the transaction will decrease accordingly. From the point of view of fees, the marginal cost of the transaction is also declining, because the transaction fee (miner fee) of the blockchain is not charged by the amount, but by the byte, in contrast, most transactions in reality It is a handling fee based on the amount. Therefore, traders can package many small transactions (possibly through lightning network, side chain or offchain channels) into a large-value chain transaction, which of course significantly reduces the marginal cost of the transaction.

Blockchain will significantly reduce transaction costs, and will give new meaning to the "Coase question". For this, I propose a bold conjecture – " blockchain island effect ": With the popularity of blockchain technology, It will make traditional production companies smaller and will make service companies bigger (Figure 3).

Picture 3

Since traditional production companies are still huge in our time, service companies are relatively small. As a leader in service companies, Alibaba and Tencent rank only 462 and 478 in the world's top 500, if you say Traditional production companies are like large animals in the industrial ecology, while service companies such as the Internet and blockchain are like small animals. This effect is almost identical to the biological island law [3] , that is, large companies will become smaller, and Small companies will grow bigger. The biological island law takes thousands of years to form, and the blockchain island law may take only ten years to observe, and whether it will happen in the future, let us wait and see.

1. " Bystack Worldview 1: Three Dimensions of Assets " ↵

2. Blockchain Credit: The Second Law of Thermodynamics of Trading ↵

3. The Law of the Island, also known as the Foster Rule, was proposed by the biologist Foster in 1964. In the island environment, small animals will become larger and larger; on the contrary, the larger the animals will become. The smaller it is.