Shulou(Shulou.com)05/31 Report--

Today, the editor will share with you the relevant knowledge of what blockchain can do. The content is detailed and the logic is clear. I believe most people still know too much about this knowledge, so share this article for your reference. I hope you can get something after reading this article, let's take a look at it.

Economic function of Block chain

In this paper, the industry of blockchain application scenarios is classified, such as Goldman Sachs (2016). This paper proposes a new classification method for the use of Token according to the application of blockchain, and discusses the economic problems involved in these applications.

Blockchain applications are divided into four categories.

The first type of application does not involve Token and mainly uses blockchain as a distributed database or a decentralized database. The representative cases are the Bay area Trade Finance Block chain platform of the Digital Monetary Research Institute of the people's Bank of China and the asset securitization information disclosure platform based on block chain technology.

The second type of application uses Token to represent assets or rights outside the block chain to improve the registration and transaction process of these assets or rights. The representative case is the design of digital bill trading platform.

The third type of application uses Token as the valuation unit or underlying asset, but relies on the legal framework outside the block chain and mainstream economic contracts. One important direction is the so-called stable cryptocurrency (stable token or stable coin).

The fourth type of application attempts to use block chain to build distributed autonomous organizations. Some practitioners have proposed that distributed autonomous organizations can replace the functions of real companies. So far, there are no widely recognized successful cases in this respect, mainly due to: the low physical performance of the public chain, which can not support large-scale transactions; the functional shortcomings of intelligent contracts; the high volatility of oken prices limits the effectiveness of Token as a payment tool and incentive means; encryption economics (token economics or crypto economics) model design is unreasonable.

Governance function of block chain

Blockchain can support some governance mechanisms that are different from traditional ones.

For example, for distributed autonomous organizations, there is no balance sheet in the traditional sense, and there are no stocks representing the rights and interests of shareholders, but some Token can be endowed with income rights and governance rights through intelligent contracts, in which income rights are realized through dividends and buybacks, and governance rights are realized by participating in governance voting. This type of equity Token can also have functional attributes, representing the so-called Taiwan dollars issued by some cryptocurrency exchanges. Holders of Taiwan dollars can use Taiwan dollars to pay transaction fees to cryptocurrency exchanges, and sometimes enjoy discounted transaction fees. The Taiwan dollar gives its holders the right to participate in the governance of cryptocurrency exchanges by voting. Cryptocurrency exchanges promise to regularly pay a certain percentage of profits, buy back Taiwan dollars and destroy them. There is a significant difference between equity Token and company stock.

However, there are some governance shortcomings that can not be ignored in the block chain.

First, the impact of Token price fluctuations on the incentive mechanism based on Token. In the consensus algorithm of the public chain (especially the POS type), distributed autonomous organizations and side chain projects, there are many ingenious mechanism designs that use Token to stimulate the behavior of the participants in the block chain to the desired goal. If Token prices are highly volatile, option valuations will also be high, meaning that Token holders need to be highly rewarded to motivate them to lock in Token9.

Second, the functional shortcomings of intelligent contracts make it difficult to transplant some commonly used governance mechanisms in the real world to blockchain scenarios.

First of all, it is difficult to construct financial instruments such as loans, bonds and derivatives based on intelligent contracts within the blockchain, and these financial instruments have important governance functions. Because there is no debt, the distributed autonomous organization does not have the problem of bankruptcy (although the number of active users, economic activity and the price of issuing Token can be zero), and its sponsors and operators do not face the same constraints from creditors as corporate owners and managers. For distributed autonomous organizations, it is also impossible to introduce provisions such as debt-to-equity swap and preferential liquidation. Secondly, the bet clause is one of the important means to protect the rights and interests of investors, and it is an agreement between both sides of investment and financing for the uncertain situation in the future (mainly reflected in the performance of the financier). However, because of the lack of decentralized prediction machine, it is difficult to credibly write the performance information outside the block chain into the block chain, so it is difficult to realize the bet clause with intelligent contract.

Third, the rapid cash mechanism of Token affects the interest binding of both sides of block chain project investment and financing. In reality, many investment and financing terms are based on the premise that equity cannot be transferred, and the illiquidity of equity binds the interests of both sides of investment and financing together and encourages them to work together until the company is listed.

Fourth, the combination of in-chain governance (on-chain governance) and outside-chain governance (off-chain governance). In-chain governance is characterized by anonymous address, de-trust environment and automatic execution of intelligent contracts. out-of-chain governance is characterized by true identity, good faith records, trust and reputation formed by repeated games, informal social capital and social punishment, and formal legal protection. Whether the two types of governance can be effectively combined is a complex issue that needs further study.

Performance and Security of Block chain system

Some scholars have done valuable research on the performance and security of blockchain system from the point of view of economics.

First, the "ternary paradox" of blockchain, that is, no blockchain system can have the characteristics of accuracy, decentralization and cost efficiency at the same time. The theoretical analysis of Abadi and Brunnermeier (2018) shows that the centralized books are accurate and cost-efficient, and their maintainers can obtain monopoly rent, and the concession value encourages them to keep accounts accurately. Distributed books reward accounting nodes to encourage them to keep accounts accurately, but selecting accounting nodes through POW sacrifices cost efficiency. The transferability of information between block chain bifurcations and the competition among "miners" will lead to "bifurcation competition". "bifurcation competition" helps to eliminate the monopoly rent enjoyed by a single block chain system, but it may also bring instability and incoordination.

Second, the pros and cons of POW. POW, represented by Bitcoin, is still the dominant consensus algorithm in the blockchain, and the security and stability of POS has not been tested for a long time like POW. Biais et al. (2018) believes that in the POW-based public chain, as the total computing power of "mining" increases, the difficulty of "mining" will rise, and the investment of individual "miners" in computing power will constitute negative externalities to other "miners". This will trigger an "arms race" in the calculation of "mining" and lead to over-investment in the field of "mining". The theoretical analysis of Ma etal. (2018) shows that the arrangement of free entry for "miners" of Bitcoin is the main determinant of the resource consumption of Bitcoin "mining", while the difficulty adjustment mechanism of "mining" embedded in Bitcoin algorithm has little impact on the resource consumption of "mining".

Third, the economics of POW "mining", especially the influencing factors of transaction rates. * * Houy (2014) theoretically studies the economic problems faced by bitcoin "miners" in packaged transactions. On the one hand, the more transactions are packaged, the more likely miners are to get fees. But on the one hand, the more transactions are packaged, the larger the block is, and the longer it takes for the block to propagate in the distributed network and become the consensus of the block chain, the more likely it is to become an "isolated block".

Fourth, about the economic security boundary of the block chain. Budish (2018) studied the security of POW-based public chain represented by bitcoin from the point of view of being attacked, and proposed a number of economic incentives to improve security. The authors argue that the higher the economic importance of such blockchains (for example, assuming that the market capitalization of bitcoins is close to gold), the more likely they are to maliciously attack them, so they should be skeptical and cautious about the large-scale use of public chains. Companies and governments have cheaper technologies for data security than public chains.

There are few blockchain projects that really hit the ground and produce social benefits.

Generally speaking, there are few block chain projects that really hit the ground and produce social benefits. in addition to the low physical performance of the block chain, the deficiency of the economic function of the block chain is also an important reason. On the basis of continuous research and experiments, we should rationally and objectively evaluate what the blockchain can and cannot do.

First, do not exaggerate or blindly believe in the function of the block chain. The industry practice in recent years has proved that the application direction of some blockchain is not feasible. In particular, the modern financial system continues to absorb all kinds of technological innovation in the process of development. Technological innovation will be integrated into the financial system as long as it helps to improve the efficiency of the allocation of financial resources and the security and convenience of financial transactions. So far, no technological innovation has had a subversive impact on the financial system, and blockchain is no exception. The supply of encrypted money has no flexibility, lack of intrinsic value support and sovereign credit guarantee, can not effectively perform monetary functions, and it is impossible to subvert or replace legal tender. On the contrary, the anonymous feature of blockchain will make it more difficult to implement anti-money laundering (AML) and "know your customer" (KYC) in financial transactions. However, it should also be noted that some national conditions of our country provide the opportunity to practice the block chain, such as the digital bill trading platform helps to alleviate the problem of decentralization of our bill market.

Second, the application of blockchain should be based on the actual situation, not rigidly adhere to some too idealized purposes. For example, it is very difficult to replace institutions and trust with technology, and in many scenarios it is even utopia. For example, decentralization and centralization have their own applicable scenarios, and there is no difference between advantages and disadvantages. In reality, complete decentralization and complete centralization are rare. Many blockchain projects start from the purpose of decentralization, but the centralization elements are introduced more or less in the later stage, otherwise they will not be able to land. For example, when the information outside the block chain is written into the block chain, a trusted centralized mechanism is often needed, and complete decentralization is impossible.

Third, at present, there is an obvious bubble in the field of blockchain investment and financing, such as speculation, market manipulation and even illegal activities, especially the Token projects involving public offering transactions. The relevant government departments should strengthen supervision and guard against financial risks.

These are all the contents of the article "what can blockchain do?" Thank you for reading! I believe you will gain a lot after reading this article. The editor will update different knowledge for you every day. If you want to learn more knowledge, please pay attention to the industry information channel.

Welcome to subscribe "Shulou Technology Information " to get latest news, interesting things and hot topics in the IT industry, and controls the hottest and latest Internet news, technology news and IT industry trends.