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Blockchain pushes information economics to the second stage, trust economics

Time : 19/12/2021 Author : izsprn Click : + -
        —& mdash; In depth interpretation of Eric · The dialogue between Professor Eric Maskin and Secretary General Chen Long of luohantang in the second episode of finding blockchain power. In the second episode of "finding blockchain power" on August 13, Eric · of Harvard University; Professor Eric Maskin and Secretary General Chen Long of Luo Hantang exchanged views on the application of blockchain technology in economic issues such as market operation, mechanism design, information asymmetry and signal signaling. Secretary General Chen long put forward an important view that blockchain can promote the development of information economics to the second stage - trust economics.
        This paper makes an in-depth interpretation of the academic framework and content of the dialogue between Secretary General Chen long and Professor Maskin. Micro information economics studies how to seek a contract and system to arrange and regulate the economic behavior of both parties under the condition of uncertain and asymmetric information. Information economics is a branch of economics. It is a science that studies the economic phenomenon of information and its movement and change characteristics. The 1996 Nobel Prize in economics was awarded to James middot of the University of Cambridge, England; Professor Morris and William · of Columbia University; Professor Vickery, in recognition of their contributions to the study of western information economics.
        The 2001 Nobel Prize in economics was awarded to three American economists: Joseph · Stiglitz, George · Akerlov, Michael · Spence is to commend their important contribution to "market analysis using asymmetric information" since the 1970s. Akerlov's contribution is that he clarified the fact that the existence of phenomena such as the seller can sell low-quality goods to the buyer is due to the asymmetry of information held by both sides of the market. Information imbalance may even make inferior used cars crowd out high-quality cars.
        Spence reveals how people should use more information they have to seek greater benefits. Stiglitz provided relevant theories for the market side with less information on how to adjust the market. The analytical theories of the three professors are widely used, and their theories constitute the core of modern information economics. Asymmetric information environment is one of the important established conditions of micro information economics. Asymmetric information refers to that both parties to the transaction have private information related to the transaction that others do not know. Information economics refers to the party who has private information as an agent. The party who does not know this information is called the client. Therefore, the general asymmetric information problem can be attributed to the "principal-agent" model.
        In an asymmetric information environment. The establishment condition of the "principal-agent" relationship is that the principal's payment to the agent is not less than the opportunity cost of the latter's participation in the contract, while maximizing its own profits. Under the conditions of participation constraint and incentive compatibility constraint, what should be the optimal choice of the principal? Hassani, a game theorist, made an in-depth study of this and defined Bayesian Nash equilibrium to seek the optimal contract or institutional arrangement and make the agent disclose the truth. The client can also obtain information through some signals, such as price, honor, advertisement, etc. The perfect competition model of microeconomics is difficult to really exist in reality.
        The research on the market under incomplete information has gradually developed into micro information economics. At present, the main research method of information economics researchers is to start with the contract theory under the condition of asymmetric information, and then study the search of information (various signals), as well as the cost of information and transaction costs, and gradually transition to the field of macro information economics. Secretary General Chen Long believes that blockchain technology realizes the algorithmization of some functions of the contract, improves the efficiency of performance, and reduces the trust cost of both parties. With the empowerment of blockchain technology, micro information economics can develop towards a higher stage of trust economics. Cryptocurrency may weaken the effectiveness of the central bank's monetary policy.
        Central banks around the world have launched digital currency (CBDC), which has a far-reaching impact on the adjustment of monetary policy. Professor Maskin believes that bitcoin and other private cryptocurrencies will eventually disappear, while Professor Chen long does not think this will happen. But he agreed that bitcoin cannot replace the currency issued by the central bank. Due to the lack of trust system behind bitcoin and the support of the state and government, the payment efficiency (using cryptocurrency) is very low and has a destructive effect on the financial system. Many countries are gradually developing towards a cashless society, so the form of money has actually been transferred in electronic form. However, when we talk about the digital currency of the central bank, we are talking about a more intelligent version of cryptocurrency, which has memory, provides more information and can do more things.
        The Federal Reserve said they are concerned about this issue, but the United States may not need central bank digital currency, while some other countries are developing central bank digital currency, and countries have different views. Due to lack of trust, cross-border payment usually takes a lot of time and energy to verify identity. Central bank digital currency can improve this situation. Financial services are based on information. Most small and micro enterprises and individuals do not receive financial support because of asymmetric information and lack of trust. Another example is cross-border payment. The cost of remitting money back to the Philippines from Philippine terracotta warriors working abroad is 8% or even 10%, but (blockchain) technology can help them reduce this cost.
        We spend too much energy to verify information, and the new digital currency can provide an effective solution. Many countries are exploring these solutions with different approaches. Professor Maskin predicts that in 20 years, all money will be electronic. Digital currency will eventually replace traditional currency. Secretary General Chen Long believes that it is almost certain that we will enter a cashless society, but we need to think about the relationship between the central bank's digital currency and the current financial system. Professor Maskin said that to make a transaction, you must know each other very well. Blockchain brings the transaction to another level, and you can trade without trusting the other party, because the technology itself will protect you, and you can trade with more people and companies.
        Therefore, blockchain has the potential to greatly increase transaction volume, thereby greatly improving global output. When output increases, everyone will benefit. Since the 19th century, the reason behind the great success of the global economy is the rapid increase in output. Secretary General Chen Long agreed that the most exciting future of blockchain does not lie in cryptocurrencies such as bitcoin, but in the huge potential to solve trust problems. Digital technology makes information so cheap that we can connect with each other and trade with people thousands of kilometers away. Digital technology also provides more information, and we can use big data to make more informed decisions. Globally, most loans are based on mortgages because of a lack of trust.
        If you provide a mortgage of $1000, I may lend you $500. In the past few years, ant financial has provided loans to 20million small and medium-sized enterprises and start-ups without requiring them to provide any collateral. These loans are based on big data, which shows us the development potential of these enterprises. Information becomes a new collateral. Information is very powerful, and the trust brought by information can be spread. Many start-ups, supply chains, and many people can get financial support in this way, so that they can do more things. The greater potential of blockchain lies in solving the problem of lack of trust, which can be called the digitalization of trust.
        Recently, ant group proposed "ant chain", which is a unique way to enhance trust, not only using blockchain. Even without blockchain, ant group still has big data. There are indeed many ways to solve the problem of trust. The world needs more information and a higher degree of digitalization. However, Secretary General Chen Long believes that the more important issue is how to establish a trust environment containing information, which will truly improve the prospects for cooperation and bring more opportunities. This is the most exciting part. Ronald, another Nobel Prize winner · Coase once said in the article "the essence of the company" (Coase, 1937) that the existence of the company is to reduce or avoid transaction costs.
        If smart contracts based on blockchain can really make contracts perform better and reduce transaction costs, will the company still exist? Will the company's functional departments such as legal affairs and human resources disappear?. Professor Maskin believes that the use of smart contracts will promote more corporate functions to be outsourced. If you can solve the problem of trust, let those who are good at these things do it more efficiently than yourself. Therefore, there will be more enterprise function outsourcing, but he doesn't think this means that the company will disappear. Companies can still bring important things, such as brand and reputation. Even if a company has many functions outsourced, its existence is still meaningful, such as ensuring that the quality standard reaches a certain level.
        Even if Armani completes all production activities outside Italy, will quality control be outsourced. Armani understands the meaning of quality, but in traditional contracts and smart contracts, it is difficult to write down the quality attributes you want. You must have the final judgment on quality. Therefore, quality control itself cannot be outsourced. Secretary General Chen Long believes that from the perspective of economics, a company is a set of contracts. However, to use smart contracts, we must ensure that relevant matters can be agreed through contracts. Unfortunately, the contract cannot cover everything. In a company or an organization, we will cooperate with each other in many ways, and we cannot write all single things into the contract. There are too many things that cannot be written into the contract. Therefore, we need a responsibility mechanism, and the responsible person is responsible to the end.
        All systems and mechanisms try to use correct incentives to alleviate the problem that the contract cannot cover all matters. For example, Secretary General Chen Long said: "Suppose Eric decides to lend me $100, and we want to sign a simple contract. If I refuse to repay the money, what can Eric do? It is difficult for him to sue me in court, because it will cost a lot of money. It is very expensive to verify all this in the contract. There are many low-cost contracts, or informal contracts, people borrow from each other, but the cost of verifying and executing the contract is very high. However, we can use the base Smart contract based on blockchain. Back to the assumption just now, Eric and I signed a smart contract for the $100 loan.
        When the repayment time comes, the smart contract will return the money in my account to Eric. Of course, after negotiation, the smart contract can also include other implementation matters. In summary, the cost of validation and execution has become very low. Even if the loan amount is only $5, it is feasible. The goal is clear and can be clearly put into the smart contract. With such technology, there will be more outsourcing activities all over the world. But for the company, there are still many high-value issues that need mutual cooperation. Because these matters cannot be put into the contract and cannot be outsourced. Therefore, the company will still exist. Secretary General Chen Long believes that bitcoin is based on an open public blockchain, and everyone can participate without trusting anyone.
        "If Eric wants to remit 1 cent to me, then we may have to spend $20 to verify that he did remit the money. There are many things to do to prove that he did give me 1 cent. The cost is too high, why? Because everything needs to be verified. Blockchain can bring great changes. Suppose that five institutions decide to sign a contract to achieve cooperation through blockchain. The actual verification cost is very low, and the efficiency is greatly improved. If If you use the smart contract on the blockchain, you can solve this problem in a few seconds. Therefore, my view is that blockchain and smart contract will greatly improve efficiency and cooperation between institutions. Just now, outsourcing will be easier because of these technologies.
        This is the future direction of development. ". Professor Maskin believes that blockchain can become a weapon against inequality. The gap between rich and poor companies, large and small companies will be narrowed, because blockchain will certainly help the weak. However, this will not completely eliminate the gap. For example, quality cannot be fully reflected in the contract, and some matters cannot be included in the contract. Quality is not a completely definable term, otherwise you can write it into the contract and fully implement it. Even in the blockchain world, large companies famous for producing products of a certain quality will continue to maintain their advantages. The reputation brought by good quality is valuable and will not disappear because of new technologies.
        Professor Maskin believes that information asymmetry is one of the basic obstacles to successful trading and one of the main reasons for inequality. Even if the poor have good ideas, they cannot get loans, nor can they get loans to pay tuition fees. Because they cannot provide mortgage, mortgage is an old-fashioned means to deal with information asymmetry. The rich can provide mortgages to get loans and become richer, while the poor are still poor. Blockchain can help us overcome the obstacles caused by information asymmetry and make it easier for poor entrepreneurs to obtain loans. In this way, the poor can catch up with the rich. Blockchain does not eliminate signal transmission, because unobserved information, such as ability and quality, cannot be objectively reflected on the blockchain.
        Professor mackins believes that blockchain has the potential to reduce signal transmission, but it cannot be completely eliminated. One of the important forms of signal transmission is this. "If I want you to lend me money, I will take some actions, not because they are particularly effective actions, but because they help you believe that I am trustworthy.". People consume a lot of capital just to convince others that they are credible, which is signal transmission. Blockchain can greatly reduce the cost of signal transmission and has great potential to alleviate the problem of information asymmetry. The impact is that the mind spent on surface work will be reduced. For example, we no longer need gorgeous skyscrapers and offices, but the trust brought by blockchain has nothing to do with these.
        Some matters cannot be put into the contract, and may never be. These matters include quality, signal transmission, etc. If a person from Armani wants to convince you that the brand has always maintained a high quality standard, he may have to do some advertising and organize a fashion show. These activities are necessary, not because they are valuable in themselves, but because they will make you believe that the quality of products has not declined. This kind of signaling will continue to exist, but many of the most obvious signaling can be eliminated.
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