Terry The traditional system structure is a highly centralized structure that relies on a centralized institution under the institutional and legal framework for the corresponding processing, for example, the settlement of inter-bank transactions requires the use of the UnionPay system, while transfers between customers within the same bank need to rely on the bank’s centralized back-office system to support, and inquiries about individual or corporate credit reports need to go to the central bank’s credit system, etc.
The exchange of value on the Internet also requires the involvement of a third party institution in a centralized position for credit assurance, which leads to a series of problems.
For example, highly centralized systems require high operation and maintenance costs to operate; such systems are vulnerable to cyber attacks, resulting in consequences such as data records being modified and privacy information being leaked; and the centralized nature also brings about high overhead expenses and the resulting social problems such as corruption. Blockchain’s distributed polycentric features can solve the above problems.
According to the paradigm of “transaction cost – technological progress – organizational optimization – resource allocation efficiency”, the existence of transaction costs will lead to technological progress and thus improve resource allocation efficiency.
The emergence of blockchain technology reduces the reliance on third-party institutions and saves transaction costs and regulatory fees; forms an interoperable database through an optimized data management model, reduces duplicate bookkeeping and coordination costs, and promotes the development of sharing economy; increases the effective supply of social resources and promotes the innovation of services and products; forms an effective constraint and incentive mechanism through the embedded rules of smart contracts, and realizes the interaction and control of resource allocation process. It realizes the interaction and control of resource allocation process and greatly improves the efficiency of resource allocation.
Blockchain technology effectively reduces transaction costs, coordination costs and supervision costs, and significantly improves the efficiency of business operation.
Blockchain trust system based on mathematical algorithm and consensus mechanism eliminates transaction frictions and transaction costs caused by the existence of third-party institutions.
For example, inter-bank clearing and registration systems and cross-border exchange and settlement systems need to create centralized institutions to guarantee the responsibility of transaction clearing and ensure the true will of both parties to the transaction, but at the same time, they need to bear high verification costs, long transaction time and a lot of audit costs afterwards.
Blockchain technically allows trading entities to trade value directly without relying on policies, systems, and third-party organizations to ensure the authenticity and security of transactions, greatly simplifying business processes and saving transaction costs.
La’Zooz is a shared mobility platform that emerged based on the concept of peer-to-peer networks. The startup is dedicated to using blockchain distributed architecture for shared mobility to replace the role of a shared mobility orchestration center in the traditional sense, like Uber.
In 2013, the company invented a set of virtual currencies, Zooz, which users earn by allowing the app to locate itself, and to encourage more service providers to join, drivers who volunteer to provide rides receive Zooz as a reward.
There is no need for a dispatch center to connect supply and demand, as users find people on La’Zooz with similar destinations and share their trips, and pay for the rides with Zooz. This model saves transaction time, reduces transaction costs, and more effectively helps cities improve traffic congestion and achieve efficient allocation of resources.
Blockchain system reduces the coordination cost of all parties. Distributed ledger technology achieves data authenticity, transparency and integrity, and ensures that all parties to the system recognize what is recorded in the ledger through a consensus mechanism.
This helps reduce the number of multi-party interfaces that need to be maintained, simplifies the switch of service providers, reduces manual duplication of effort, and lowers multi-party communication and reconciliation costs. It can also break the protection of interests caused by centralized data management, and the operating costs of the whole society are expected to be significantly reduced and the efficiency will be greatly improved.
Blockchain system reduces the cost of government regulation. Transparent distributed ledger makes a large part of information authenticity verification work transferred to social supervision, greatly reducing the workload of regulators and improving the convenience of supervision.
In addition, distributed ledger technology allows nodes to share the underlying data information, and government regulators can track the database in a more comprehensive, real-time and personalized manner, so that any changes in the ledger can be traced back to its source in a timely manner and play the role of anti-forgery and anti-fraud, thus improving regulatory efficiency and reducing regulatory costs.
Blockchain’s distributed bookkeeping and storage realize data interoperability and promote the realization of sharing economy.
The blockchain distributed ledger optimizes the data management system and facilitates data sharing. The essence of blockchain is a database with distributed storage. It’s distributed bookkeeping, distributed dissemination and distributed storage can fundamentally change the current way of managing data.
Publishing information directly by the data issuer provides a real-time, trusted source of shared data for multiple participants. By adopting a common format, a large amount of redundant data is gathered into one system for network data information integration. This reduces information asymmetry and enables more efficient and cost-effective information and value sharing.
Blockchain system data can avoid duplication and inefficient coordination and control, thus reducing the system cost of book interoperation, cross-call and check, and realizing the benefits of cooperation and sharing economy in a deeper way.
As much as $375 billion is reportedly wasted each year due to the overly complex nature of the current healthcare billing system. If insurers, hospital billing departments, and patients all use the same blockchain to manage payments, identifying the authenticity of new transactions with a unique cryptographic timestamp, information can be synchronized and shared inexpensively, prompting all parties to take the necessary concerted action directly.
For example, encoding personal health records as digital assets with digital addresses rather than real names is confidential on the blockchain. Individuals can manage security conveniently with the help of private keys, and by allowing parties such as doctors, pharmacies, and insurance companies to access the medical records they need through the private key function, the synchronization of health care information can be improved, and the timely sharing and direct delivery of health care services and outcomes can be achieved, thereby improving the optimal allocation of health care resources.
Blockchain increases the effective supply of resources by integrating and utilizing idle resources to achieve Pareto improvements.
The application of blockchain technology can realize the integrated utilization of idle resources. Through the way of revenue sharing, the system determines the amount of reward according to the quantity and quality of resources provided by the participants, stimulating people to supply more resources in economic activities in order to get more reward. Through the reallocation of resources, the utility level of some people is increased without the loss of the utility level of others, and Pareto improvement is achieved.
The SETI@home project uses idle computing power scattered across personal computers to analyze radio signals from space to search for signs of extraterrestrial intelligence; the Folding@home project at Stanford University similarly integrates the computing power of individual volunteers to simulate protein folding for new drug development.
Both projects issue digital currency on the blockchain as rewards for volunteers who contribute. Further, if some projects wish to better mobilize volunteers to participate in research, they can also adopt a crowdfunding model to share research data and resources with interested volunteers, enabling open and free large-scale collaboration and giving full play to the power of citizen scientists to drive research progress.
The new supply of resources further facilitates the development of new products. Blockchain technology can enable data sharing in a secure way while guaranteeing that participants have data control rights. Many commercial organizations can use this new data to design and develop better products.
If governments and financial institutions record all data on the blockchain, and through participant authorization, insurance companies can view data information that has been authenticated by multiple parties, such as governments as well as banks, then they can issue more targeted insurance products and also set premiums more accurately and rationally.
Blockchain establishes effective constraints and incentives through embedded rules to enhance the efficiency of resource allocation.
In the past, we emphasized the importance of optimal resource allocation, but how to achieve and ensure the effectiveness of resource allocation has not been and has not been given sufficient attention.
The government redistributes wealth in the form of social welfare and subsidies, but we have no way to know whether this redistribution really plays the role of regulating income disparity and whether it really balances social equity and efficiency.
Blockchain system gives intelligent control and supervision to the process of resource allocation based on distributed ledger. By setting incentive and constraint triggering conditions, the system detects the execution of the previous task and decides whether to continue to allocate resources in the next step, realizing the interaction and control of the resource allocation process. It guides participants to reduce the cost of resource use, reduce inefficient economic activities, and use their own resources efficiently to maximize the benefits.
“Education smart contract” is a good application of blockchain technology in the field of education funding. The funder sends learning coins to the recipient’s digital wallet, and the contract has an embedded program to test the recipient’s learning effectiveness. After determining the digital identity of the tester, the completion of the recipient’s designated learning module is tracked through a standardized online test, which triggers the automatic disbursement of funding for the next learning module when the test results of the education smart contract are met.
Such an educational smart contract enables automatic coordination between the sponsor and the recipient, effectively monitors the recipient’s learning outcomes, and ensures the efficient use of grant funds. Similarly, similar educational smart contracts can be applied to the allocation of spending on vocational re-education for government personnel and company employees. The efficiency of the use of vocational re-education funds is improved by continuously creating positive incentives.
The blockchain system saves transaction costs and improves the efficiency of resource allocation, but there are costs associated with its own operation, such as high energy consumption, block capacity issues, and there is still much room for improvement in smart contracts, digital signatures, and other related application algorithms.
The promotion and use of blockchain system is reasonable only if the cost savings of the blockchain system is greater than the cost of operating the original form of organization, otherwise the cost of transactions is too high, which will make many transactions unable to happen. The effective and rational allocation of resources is difficult to achieve. Economic efficiency naturally cannot be improved either.
