Sunday, November 01, 2015


The Economist has a very nice cover story on blockchains and trust ("The trust machine: How the technology behind bitcoin could change the world"). Technology helps people find ways to reduce transactions costs, promote trust and enhance productivity and wealth. The story begins where Hernando de Soto leaves off: there is "dead capital" when and where people do not have clear title to their property. So they remain poor. But better record keeping is expensive. It appears that that proper record keeping and all that follows is now within the reach of many via the application blockchain technology.

Economic growth is natural (people want to make money) but it's movers have to contend with an army crony capitalists and redistributiuonists. (Even now the latter have not grasped the fact that the harder they work, the less there is to redistribute.) The U.S. economy usually grows impressively after a downturn. But after the Great Recession, we got the Great Regulation -- and growth that's less than half what it should be, still hovering at near just 1.5% annual GDP growth.

That aside, in the derby between the forces for growth and the redistributionists, I remain optimistic that growth will win. Blockchain technology powers Bitcoin electronic currency but could just as well advance all of the other transactions that require record-keeping and verification -- and therefore trust. Here is how The Economist's Leader for the story concludes:
The notion of shared public ledgers may not sound revolutionary or sexy. Neither did double-entry book-keeping or joint-stock companies. Yet, like them, the blockchain is an apparently mundane process that has the potential to transform how people and businesses co-operate. Bitcoin fanatics are enthralled by the libertarian ideal of a pure, digital currency beyond the reach of any central bank. The real innovation is not the digital coins themselves, but the trust machine that mints them—and which promises much more besides
Many have experienced Uber and they quickly get it. But this is just the start. The winners will be not just be the smart and inventive people but the rest of us who too.