Messari’s Qiao Wang Explains How Crypto Networks Reshape New Ways of Economic Activity

Crypto Networks Could Introduce New Ways of Economic Activity Says Mathematician

According to Qiao Wang, a mathematician, engineer and trader wrote a post on Medium in which he explains that crypto platforms could be used to organize economic activity in the near future. The post is titled ‘Crypto networks and the Theory of the Firm.’

He starts by questioning why centralized firms exist when there is an open financial market that could be more efficient to allocate resources. Wang says that the CEO or owner of the company is the one in charge of coordinating the economic activities at the firm.

However, markets are institutions in which the economic activities are dependent on a price mechanism which is coordinated by market participants rather than by a centralized authority. Indeed, the market is built around a decentralized network of participants.

Wang commented that if a worker is offered $50 dollars per hour contract or a $100 per hour contract for the same job but from different parties in the market, it would likely choose the contract with the highest payment.

After it, he asks users that promote capitalism and decentralization why centralized firms are so prevalent in our daily lives when the market is so efficient maximizing people’s incentives. He would expect for all the economic activity to be carried out in a decentralized manner.

According to the author, Ronald Coase is the inspiration for general cryptocurrency networks. He won the 1991 Nobel Price after creating a new branch in microeconomics known as the theory of the firm.

The world and several economists are also very obsessed with the possibility of having a world with zero transaction costs. On the matter, Wang quotes Coase:

“In order to carry out a market transaction, it is necessary to discover who it is that one whishes to deal with, to inform people that one whishes to deal and on what terms, to conduct negotiations leading up to a bargain, to draw up the contract, to undertake the inspection needed to make sure that the terms of the contract are being observed, and so on.”

Coase says that there are three kinds of costs: search and information costs, bargaining and decision costs and policing and enforcement costs. And because the firm is able to reduce these costs it is why it exists in the market and alongside it.

With cryptonetworks it is possible to blur the dividing line that exists between the market and the firm. Indeed, they offer the best of both. The allow the tradeoff boundary to be expanded.

In this way, people will be able to organize their economic activities without a ruler and in a decentralized way. Cryptonetworks are also a great way to reduce transaction costs. It is possible to increase the number of individuals participating in the network. This is very different compared to the market’s price mechanism in which the recruiter is an individual or a small group of people.

Bargaining is also an important part of the discovery process. Tokens allow the discovery process to take place as liquid trading. According to Wang, there is a negotiation between large parties that swiftly reduce the information asymmetry. At the same time, cryptonetworks work by enforcing contracts by decentralized consensus.

Cryptonetworks would allow the market and the firm to work closer together and potentiate their positive points. The firm is complemented by bringing the meritocracy of the market and the market receives the transaction cost reduction of the firm.

In the future, more economic activities will be organized using cryptonetworks in the next decades.

Get Daily Headlines

Enter Best Email to Get Trending Crypto News & Bitcoin Market Updates

What to Know More?

Join Our Telegram Group to Receive Live Updates on The Latest Blockchain & Crypto News From Your Favorite Projects

Join Our Telegram

Stay Up to Date!

Join us on Twitter to Get The Latest Trading Signals, Blockchain News, and Daily Communication with Crypto Users!

Join Our Twitter

Add comment

E-mail is already registered on the site. Please use the Login form or enter another.

You entered an incorrect username or password

Sorry, you must be logged in to post a comment.
Bitcoin Exchange Guide