Talk given at Refactor Camp, May 2018

1. Blockchain Archipelagos
A possible future

2. What is a blockchain?
A global, distributed database that has:
● Immutable history
● Digital signatures built in
● Fair solution to consensus, for some definition of “fair”
● Smart contracts, or at least some programmability
● Probably Merkle trees?

3. The Internet of Agreements
■ Internet of Ideas - HTTP, SMTP, FTP, HTML
Simple information sharing: pages, documents, emails, wikis, blogs
■ Internet of Shopping - HTTPS, SSL, PCI/DSS
Point-to-point payments: Amazon, Netflix, eBay
■ Internet of Agreements - blockchains, AI, automated logistics
Multi-party, conditional, long-term agreements

4. Coase and smart contracts

5. Coase’s Theory of the Firm
● Why do firms exist at all? Why use hierarchy and
command rather than contracts?
● Firms are more like feudal aristocracies than markets
Coase tells us that transaction costs make top-down firms
more efficient than contracting out in some scenarios.
Breaking up integrated firms creates new markets, but also
creates new transaction costs.

6. Intents and disputes
In a firm, shared intent is formed top-down.
The top of the hierarchy gives orders, the
lower levels implement them (or pretend
to). Disputes are a disciplinary matter.
In a (fair) market, shared intent is formed
using contracts, which both parties must
find acceptable. Disputes are handled by
neutral procedures, with third parties
employed to mediate and arbitrate.

7. Marketisation is hard
Constellations of market relations can be really hard to manage - so-called
“Coasean hells”:
● The F-35
● British railway networks
● The US healthcare system
● Modern universities
● Arguably, the Global Financial Crisis
Often, out-sourcing and sub-contracting performs worse than we might
expect.

8. Smart contracts might shift the Coasean boundary
What is the problem we wish to solve when we try to construct a rational economic
order? [...] it is a problem of the utilization of knowledge which is not given to
anyone in its totality. - Friedrich Hayek, The Use of Knowledge in Society, 1945
Put simply, smart contracts digitize relationships in the market. This can reduce
transaction costs and increase information flow.
Vinay Gupta’s “Dog Atheism” is one example of how a smart contract economy
could employ complex value transfer using smart contracts.

9. Globalization and its challenges

10. Image from http://rodrik.typepad.com/dani_rodriks_weblog/2016/06/brexit-and-the-globalization-trilemma.html
Dani Rodrik’s trilemma of the world economy.
Nation states, democracy, integrated markets - pick two!

11. If rules between nations vary, the costs of compliance disrupt trade.
So, either eliminate the nations (EU) or eliminate the variation (WTO).
Result: large, homogenous blocks, reduced local variety.
The way things are: globalization 1970-2016
Credit: Kari, deruneinholbare, Chalky Lives (Flickr)

12. Globalization’s assumptions are breaking down
● TPP failed to achieve ratification
● NAFTA is back on the table
● Brexit
● Right-wing populism and nationalism on the rise
● The China Shock was real
In many cases, nation states and self-determination are being chosen ahead
of further market integration.

13. Globalization 2.0
Some boundaries are fine. In fact, they’re good!
Variation is not just tolerable, it should be encouraged.
That leaves us with an integration problem that is practical, not philosophical.
Put simply: how do we handle the paperwork?

14. How the blockchain saves the world economy
● Smart contracts can solve their own compliance problems
● Open, digital representations of deals and trade networks give us “God’s-
eye-view” of systems we previously controlled using crude regulations
● Measurements of network health and other emergent outcomes are
possible
● Smart contracts lower the cost of running a trading economy

15. Image from http://rodrik.typepad.com/dani_rodriks_weblog/2016/06/brexit-and-the-globalization-trilemma.html
Put generically, we have separation, self-determination, and integration.
Integrating separate, self-determining units is hard, but not impossible. We
need the right shared intents, and the right dispute resolution.

16. Generated with https://azgaar.github.io/Fantasy-Map-Generator/

17. This is one possible future
Decentralized groups, integrated by common means of contracting and
dispute resolution. Applies to firms, nations, social media communities, and
more.
But it’s not the only option!
Others include more restrictive nationalisms, balkanized internet, or global
monoculture.

18. Our scenario planning pack

19. Q&A
@rob_knight