Blockchain technology enables new forms of networked distributed organizations, something that runs very much contrary to our existing organizational paradigm and that is what makes it difficult for us to understand. The organizational model of the industrial age that we inherit today was one of centralization in order to achieve economies of scale through mass production thus reducing unit cost and provide for a mass society. The technologies of the industrial age selectively favored centralization of production within closed hierarchical organizations. Manufacturing is centralized in factories, transport systems are centralized around transport hubs, education within schools and universities, entertainment centralized within mass media organizations and governance centralized within state-run organizations and so on.
The information revolution is in the process of taking us into a new world of distributed networks as the organizational paradigm of the information age. The combination of telecommunication networks and computerized coordination enables us to replace centralized management within closed hierarchies with open networks. As the underlying technology matures we are able to convert more and more systems that were previously closed and centralized and have them manage through automated networks. We saw this with the rise of online platforms like eBay, Uber or Alibaba, social networks, and blogging etc. that built massive networks of users exchanging goods and services peer to peer. But these platforms were still dependent upon the centralized organization to manage the shared database, the computing infrastructure, the algorithms and to enable trust within the network. The decentralized web takes these platforms a step further by offering a shared open database that can be trusted by all parties and a set of protocols for the secure exchange of value between organizations.
The web platforms are open networks this means they do not just optimize within a given organization but can enable coordination across whole industries, indeed this is why and how they come to supplant the closed organization. What centralized organization enabled was trust and coordination and cooperation within organizations, but what the blockchain enables is trust, coordination and cooperation between organizations and between individuals peer-to-peer.
If we look at how our society and economy is currently organized we will see many closed organizations that are internally optimized, but when we look at the inter-organizational space it is extremely inefficient. For example, if we look at the way businesses coordinate along a supply chain, or the way nation-states interoperate in the global political system we will see there are huge redundancy and frictions caused by discontinuities. A classic example of this is the border system between nations and the bureaucratic procedures for obtaining a visa for moving from one nation to another which creates a massive amount of friction at the inter-organizational space. This greatly reduces the overall effectiveness of these systems and the delivered outcome for the end user. When we look internal to these organizations they look like efficient well-oiled machines, but when we look in between them the whole system is very inefficient.
This is part of the significance of blockchain because it provides a shared trusted database between organizations it has the potential to switch the dynamics within economy and society from competition between closed centralized organizations to collaboration between organizations and greatly strengthen work capacities across organizational boundaries the result of this would be much more efficient overall societal and economic outcomes. Indeed we can note that achieving coordination across organizations could result in quantum leaps in delivered outcomes and our capacity to tackle major global challenges of today such as environmental degradation where week existing inter-organizational institutional infrastructure has made little traction. In this respect, blockchain has the potential to give us not just incremental improvements but an order of magnitude greater capacities within society through collaboration within whole ecosystems. It is precisely this coordination across organizations, industries, nations and peoples that is required to provide the resources needed to tackle some of today’s most complex challenges and it is precisely this that is significantly absent with existing institutional structures.
Because of the centralizing forces prevalent in the Industrial Age we live in societies that are operated by many different closed organizations, many different companies all producing cars and competing for market share, many different governments that all focus on the interest of their own citizens over those of others, many different healthcare providers, transport providers etc. The result of this is though a huge amount of inefficiency and redundancy when taken as a whole, many different companies all recreating the wheel within their own organizations and expending a huge amount of time and energy on trying to get ahead of their peers.
We assume this is the normal state of operation but in fact, it is just a function of the institutional structures we have built over the past centuries. As game theory will tell us people respond to incentives and the socioeconomic forces acting on them, in the absence of cooperative structures competition is often the optimal strategy for individuals and organizations, but once there is the institutional structure to enable trust and coordination between members cooperation can become a much more viable strategy for agents involved. Because the blockchain enables this shared database it makes it greatly more possible and viable for organizations to collaborate on a single solution or single source and achieve much better results for each organization and economy as a whole. As an example of this cooperation across different closed organizations, we could think about the design and construction of a building, there may be many different companies involved in this process all creating their own design and diagrams for the building with each then having to continuously contact each other to access and exchange and cross-reference them. Given a shared database they could all collaborate on a single design of the building making for a greatly more efficient overall process each organization benefits and the overall results are more efficient.
Likewise the same is true for identity, we currently have many different copies of our identity spread across many different organizations, governments, social networks, employees etc. each with only a partial understanding of us, currently we are recreating the wheel for each organization while data and reputation do not move well between them. Instead, a single identity could be created on the blockchain that belongs to the individual with each organization then contributing to this database as they are working together to create a more complete record of identity and reputation. In so doing we have moved from all those frictions between these closed organizations to collaboration and synergies between them creating something that is greater than any of the parts they had before. The same is true for a supply chain instead of each participant holding their own documents and records during each stage in the supply chain a single record for the item could be created on the blockchain with each organization then contributing their information to it to create a single source of truth that is accessible to all as needed. The end result of this new institutional technology is a much greater capacity for inter-organizational collaboration and powerful ecosystems that are greater than the sum of their parts.
Given that all of our current systems of organization that are centralized could be decentralized in this fashion using blockchain technology we can see how it really could enable a reorganizing of society and economy. Organisations within society rarely operate in isolation, they function as part of ecosystems and the value for society is not created by anyone but instead by the flow of value across the ecosystem. Whereas our previous institutional structures optimized for individual organizations the blockchain optimizes for the value within the whole ecosystem and thus much greater value for society as a whole. The information revolution is changing the world from disconnected to connected. The hyperconnectivity genie is out of the bottle and connectivity along almost all dimensions is proliferating daily. As a consequence, our systems of organization will change from being based on fixed structures and boundaries to being coordinated via connections. Instead of the control of components through fixed hierarchical structures, organization will emerge out of interaction and the exchange of value along those interactions. Enabling that will require a massive build out of secure frictionless information networks, this global cloud computer of the blockchain.