There are many theories surrounding economics and compute.
We can go back to the days when the Internet was first becoming popular to see the idea of "the new economy". While this ended up being a bit misplaced, we do see how many aspects, including online commerce, exploded over the ensuing decades.
Economic theory is an interesting subject where, it appears, many adopt a viewpoint and never change it. Unfortunately, this is a vast percentage of the profession, which still espouses decades old outlooks. This is true regardless of the school one comes from.
Our understanding of what is taking place, especially with blockchain, might not come from economics. Actually, it is the research in computer science and some of those theories that provide a more realistic framework of what we are dealing with.
In this article we will look into how Web 3.0 could be at the foundation of a digital change.
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Web 3.0: A New Type Of Computer
When modelling this, it is important to note we are not using an analogy. We are not saying the economy like a computer. Nor are specifically focusing upon the adoption of computers along with the investments that are being made.
Instead, we are looking at this from the perspective of the economy as a computer. This is led by Web 3.0 with the basis in blockchain.
We start this process by going back to John von Neumann who developed the theory of self-reproducing automata. This was, as far as I know, the first attempt at explaining the evolution of compute as a self-making information system. A lot of this work was tied to cellular (biological) evolution, something that was followed up with through research into DNA and the Genome.
Whether we are discussing the biological body, computing, or the economy, we are dealing with complex organisms. This means that higher orders require the evolution from lower ones. Transition up the scale is depending upon the self replicating objects (cells, institutions, algorithms) that form new language or encoding possibilities.
Computers store, process, and transmit information. They do this based upon the instructions programmed in. Here is the basis for all which dates back to von Neumann. Over time, we build upon this concept to expand how we do these basic functions. If we go through the history of computing, we can get an idea of the transitions that were made over the decades.
Will Web 3.0 becomes a completely new form?
The idea here is the economy as compute. Tokenization starts to blend the economy in ways never seen before.
Tokenization: The Digitization Of Everything
Information is something that is crucial. We often discuss the importance of data. This is the "food" that produces information, especially in a world of growing artificial intelligence.
What we are dealing with is advancing levels of computation which effects the control over the entire system. An example of this is the switch from analog to digital media. Consider how that changed the way we process, store, and transmit this type of information. Our media entities are completely different as compared to the 1960s.
Here is where we see the massive transformation.
When it comes to the economy, it is the institutions that are affected. This is no surprise since it is the basis for the entire economy.
Digging in a bit deeper, there are basically two types of technologies as it relates to the economy. They are:
- those that affect economic production
- those that affect economic coordination
The first is rather obvious.
We can see how economic production is increased as factories are built, all with advancing technologies. The expansion of our telecommunication networks allow for greater interaction between parties, also impacting the productivity.
Blockchain, however, affects the second. This is where the idea of the economy as a new type of computer enters.
The economy is a complex organism. Over time, it evolves and grows without the direction of a central party. Even in planned economies, they take on a life of their own. They contract without warning, gearing up for another growth stage.
We also see the same with the Internet. How could these two be aligned for something of greater impact?
Real World Assets As Information
Anyone who follows the cryptocurrency industry in any detail has come across the notion of real world assets. This is the idea of taking things such as cars, houses, and stocks and putting them on chain. This is one thing people are describing when mentioning tokenization.
Of course, there are also tokens created in the digital realm. These are of similar concept, providing the model for what is possible, yet have no applicability to the real world.
Presently, the transfer and processing of real world assets is slow. It requires the intermediation of third parties who theoretically there to provide trust. These parties not only provide friction but are also extractors from the system.
We can see the difference between the two simply by looking at an on-chain asset such as a token on Ethereum versus the transfer of a property deed. For the latter, what is the process, how long does it take, and what is the cost?
Quite simply, there is no comparison.
With the Ethereum token, we are only restricted by compute. The entity (blockchain in this instance) is powered by the amount of compute available. It is also something that operates in a predictable, orderly fashion. This is what computers do. They are programmed to store, process, and transfer data in a certain way. Going back to the evolution, over time, we designed new methods for this.
The net result was an advancement of our ability to transact. An example of this evolutionary "climb" is cloud compute. That changed how entities dealt with information.
The Information Economy
Web 3.0 could have a massive impact upon economic coordination.
When we look at the global economy, there are hundreds of trillions (quadrillions?) in real world assets that are basically analog in nature. Here is where the idea of entities using computers for economic purposes differs from the economy as a computer.
Web 3.0 actually brings the latter to life.
Real world assets are stored, processed, and transferred. They are part of the economic productivity the world enjoys. The coordination of this, however, is still pretty much analog. There is no system where the assets are moved without the intermediation of third parties. Even stocks still require 3 days to settle. Compare that to a transaction on Hive which is irreversible in under 2 seconds.
The power of this is not only the ability to transact in a different manner. What we have is actually the computable economy. From here, different levels of evolution can occur. It provide the world with the ability to tackle hard problems as new methods are designed.
It is a shift that penetrates even sector of the economy. We see how this can impact the largest corporations and travel down to the individual.
The economy is a self replicating entity in its own right. What we are discussing here puts it on steroids. The economy as a new computer means it operates under different laws, pushing it to greater levels of expansion. Digitization accelerates everything. Web 3.0 can do this.
Starting with real world assets, we can see how the new layers of innovation can be applied to these. This will invariably generate more economic production, simply through better economic coordination.
This is the power of tokenization. It takes most industries and digitizes them in a manner which fundamentally alters the economy.
In Web 3.0, this is called tokenization.