Blockchain Economy

An economy is defined as a social domain that emphasizes the practices, discourses, and material expressions associated with the production, use, and management of resources.1

The contemporary concept of “the economy” wasn’t popularly known until the American Great Depression in the 1930s.2


According to Coase in The nature of the firm “the distinguishing mark of the firm is the supersession of the price mechanism… Outside the firm, price movements direct production, which is coordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions are substituted for the entrepreneur-coordinator, who directs the production.”

Economies are heavily influenced by the flow of goods, electricity, information and currencies. That’s why a country’s infrastructure can best be analyzed by four sectors: transportation, energy, telecommunication and money.

In 2005 Thomas Friedman published a book titled ‘The World is flat’. In the book Friedman describes how national economies experienced a wave of decentralization with the emergence of advanced telecommunication in form of  the Internet

The net removed the friction of having to send physical documents which is costly and time-consuming. This enabled organizations to distribute information-related jobs to companies and individuals around the globe at next to zero distribution costs through email and file sharing. Voice-over IP – another technology enabled by the Internet – further removed the high costs of international phone calls which now allows companies to maintain call centers in nations with lower minimum wages. The world wide web also created new marketplaces in which providers from every country with access to the network can compete.

Blockchains have the potential to remove friction from all infrastructure segments as well as regulation.

Transportation: Supply-chain management on the blockchain.
Energy: several blockchain-based solutions for peer-to-peer sales of energy underway.

Telecommunication & Internet

Aside from Internet infrastructure (World Computer; Earth Operating System – EOS), creating the “Internet of value distribution”.

As of today, the transfer of assets often requires at least one middleman who is generally compensated for his involvement. Assets whose ownership is recorded on a blockchain can reliably be transferred without a rent-seeking third party. Properties and other items that today  require brokers and agents can be traded with greater efficiency.

Economies which empower their participants to maintain ownership records on blockchains will eliminate unproductive and rent-seeking institutions.

Money. A technology that was invented to solve the double-coincidence of wants problem. Evolved from ‘commodity money’ where money represented precious metal such as silver or gold to fiat money. Fiat money replaced the trust in the value of the commodity with the ‘guarantee’ of the government issuing the currency. The government assigns licenses to middlemen – such as banks – to control the flow of this money.

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) links more than 11,000 financial institutions in over 200 countries, processing about 15 million messages per day. Transactions on SWIFT can takes days and sometimes weeks to settle and often carry significant fees with them.

Bitcoin introduced the concept of money-over-IP. Like voice-over-IP, it is a peer-to-peer technology which does not rely on a middleman and the legacy technologies they employ.

Blockchains such as EOS.IO can already handle more than 100 million transactions per day with no fees and near instant account settlement.

Economies which adapt this type of money-over-IP will have significant time and cost advantages over economies that are still relying on legacy systems.

Economic Agents

Buyers and sellers are two common types of agents in partial equilibrium models of a single market. Macroeconomic models, especially dynamic stochastic general equilibrium models that are explicitly based on microfoundations, distinguish households, firms, and governments or central banks as the main types of agents in the economy.

Smart Contracts


Perfect Competition

Under perfect competition, there would be no corporations; individuals would trade among themselves. Since the conditions for perfect competition cannot be met, however, market failures arise. Some of these can be overcome by contracts, but in many cases the transactions costs will simply be so high that it is not worth doing business or the necessary agreements would be unenforcable, leading to missing markets. Corporations allow individuals to overcome certain market failures and create markets that would otherwise be missing.

One of the conditions of perfect competition is no returns to scale. In the real world, however, such returns exist, and corporations are one way to allow the economy to capture the efficiences of scaling up.

Stated simply, Alice and Bob are in Nash equilibrium if Alice is making the best decision she can, taking into account Bob’s decision while Bob’s decision remains unchanged, and Bob is making the best decision he can, taking into account Alice’s decision while Alice’s decision remains unchanged.

Currency / Money

After the devastating Great Depression, policymakers searched for new ways of controlling the course of the economy. This was explored and discussed by Friedrich August von Hayek and Milton Friedman who argued for global free trade and are supposed to be the fathers of the so-called neoliberalism. However, the prevailing view was that held by John Maynard Keynes, who argued for a stronger control of the markets by the state. The theory that the state can alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism in his honor.

Banknotes were once a type of currency backed by gold and silver in the US. As such, banknotes could be exchanged for “legal tender” (i.e. gold and silver) at any time by the owner. US silver certificates, for example, could be exchanged for their face value in silver.

Keynesian economic theory of creating inflation to stimulate the economy was now in full force within the Roosevelt administration. The irony of the situation is that abandoning the gold standard was done to build confidence in the economic system.

Considering that a fiat currency’s value as being backed by nothing tangible, the idea of money can be contrasted with it. Money or “commodity money” can literally be any type of commodity, from seashells to stones, which can serve as a medium of exchange for goods, services, and payment of debts. Unlike government decreed and issued fiat currency, commodities like gold and silver have an intrinsic or “use value.”

Information Age / Asymmetric Information


Conclusions (prelim.)

Blockchain economies are not confined by geographic locations, political structures or legacy legal systems.

1991 paper by the economist Milton Friedman, who compared Yap’s monetary system to the gold standard.

Blockchain: Blueprint for a New Economy, Melanie Swan


  1. Urban Sustainability in Theory and Practice: Circles of sustainability. Paul James, 2017
  2. The Invention Of ‘The Economy, Jacob Goldstein 2014