As a reminder, public blockchains, like Bitcoin, allow for the continuous, complete, and publicly available recording of all transactions on the network. Elle permet égallement aux membres de vérifier la valeur des transactions passées, de vérifier l’exactitude des mises à jour dans le cadre du mécanisme de consensus de la preuve de travail et de déterminer si les parties en interaction possédente la progiéré the value. By leveraging the shared and validating database of distributed ledgers, blockchain attempts to redesign information ecosystems in a transparent, immutable, and trusted manner. An interesting topic as the current hype around virtual currencies.
This situation leads to two outcomes in terms of economic performance: moral hazard, which consists in causing an individual’s behavior to change negatively once the transaction is carried out (for example, the fact that credit installments are not paid after it has been granted) and anti-choice, that is, when hidden information affects, or That is not disclosed voluntarily, on exchanges in trade. A reverse selection can break up the entire market.
Example of a car dealership
George Akerlof was awarded the Nobel Prize in Economics in 2001 for his article Lemon Market. In it, the American economist takes the example of the used car market to highlight the mechanism of the opposite selection. A market consisting, on the one hand, of high-quality semi-cars (worth €15,000), and on the other, half-cars of poor quality (worth €5,000). In this example, sellers only know which car belongs to which group (good or bad quality). Buyers themselves are aware of the quality distribution but are unable to decide which cars for sale are of good or bad quality. Contrary to what one might think, the price never tends to average €10,000. why ? Since this price, sellers lose 5,000 euros by withdrawing high-quality cars from the market. In this context, buyers are not willing to risk paying €15,000 for a potentially poor quality car. This anti-choice mechanism discourages transactions and can lead to market suppression. This rigorous example proves that we regularly, if not all the time, need information to conduct transactions in our society.
To combat this complete lack of information and anti-choice, several “legal means” are placed. In the previous example, certificates of registration and technical control, for example, make it possible to reduce information asymmetry between the seller and the buyer and the effect on the price is immediate. The buyer, of course, will be willing to pay more for a car that has passed the technical inspection than for a car that has failed.
The financial limit of legal means
These legal means involve relatively high costs for market players to reduce and reduce information asymmetry. These legal means must be robust to guide players to make rational choices in order to allow setting prices that best reflect the information. These legal means must necessarily come from reliable and widely recognized institutions of market players, whether public or private. Through these legal means, as we saw in the previous example, these institutions, which play the role of trusted third parties, in this case the state, control information asymmetry. We can easily combine this role with that of banks and insurance companies which, thanks to a skillfully created rating system, makes it possible to detect good and bad payers and thus reduce the risk of moral hazard (non-repayment of credit or even false advertising of insurance). Inconsistency in information that only benefits one of the parties in the exchange. But even a bloated economy is not immune to these biases. Peer-to-peer exchanges really aren’t. Trust passes through these intermediaries: Le Bon Coin, Uber, Airbnb, one-to-one… each positioning themselves as trusted third parties and mastering information asymmetry. This manufacturing of delegated legal means to trusted third parties is costly by definition, because they are suppliers of sacred trust monetized through “legal means” that consumers are willing to pay for peace of mind. (An episode dedicated to the concept of trust: here)
Blockchain: a possible symmetry?
This technology is primarily intended to be transparent and provide absolute traceability. A property that makes it possible to generate almost completely impartial information. Let’s go back to George Akerlof. If all vehicle information was stored in the public Blockchain, the cost of discovering the intrinsic quality of the information would be nearly zero. The Buyer will have all the elements available to make a rational decision with full knowledge of the facts without having to trust the Seller’s statements and/or resort to costly legal means. I also wrote an article highlighting concrete cases of blockchain tracking (click this link to discover it).
Nor does this mean that the public Blockchain is a kind of completely transparent open ledger conducive to economic spies where any personal data, industrial secrets, state secrets, etc. can no longer be protected. For the blockchain to function in our current economy, disclosure of certain information must only be possible within a small group of operators. Only public information (public key) can be consulted. The Zero Knowledge Proof (ZK) (Proof of Zero-Knowledge Disclosure) In cryptography, it is allowed to prove to another actor that someone owns the information without producing it. So it is possible, for example, to prove, in a cryptographic way, that we know where a person is geographically without betraying their position. Another example is, under the Bitcoin Blockchain framework, to prove that I own bitcoins without disclosing my signature and public address Zero-knowledge proof). Without this feature, it would be possible to take advantage of publicly disclosed information from our business partners to improve our competitiveness and increase our own profits. It is not economically viable.
The lack of verifiable identities is emerging as one of the major problems of the information age, leaving room for identity theft, privacy violations, new and existing forms of surveillance, and other forms of fraud. Today’s citizens have no control over their online presence, which not only causes immediate problems, but undermines long-term trust across the entire data system. As part of this, as an example, the Massachusetts Institute of Technology (MIT) is in its second year of a project providing students with blockchain-based digital degrees. While still dependent on the registrar’s office, the project aims to provide graduates with more control over their credentials and the ability for others to view them.
It remains to be seen whether blockchain technologies will provide a distributed, more equal and democratic alternative to existing enterprise solutions. Likewise, recent developments towards more private, permission-based blockchains may actually create new information asymmetries or reinforce existing symmetries rather than dismantle them. Let’s absorb this additional episode before we find a new one soon that demystifies a new face of Web3.