Cryptocurrency Closes the Leaks in Self-Contained Value Economies

Modern capitalism has largely derived its current form from Adam Smith’s “Wealth of Nations”, which akin to Laissez Faire economics implied that the private sector is most functional when governments are not actors in the equation. The idea caught on especially in France during an era where subsidies and taxes were viewed as harming businesses and their momentum, leading to the proliferation of the terminology itself. The idea of effective free markets has not all but been abandoned, but adapted, and become more tightly regulated with the passage of time. In fact, this very regulatory presence has been the source of substantial scorn and become a catalyst for significant political opportunism.

Take, for example, the idea of Brexit, the UK’s proposed exit from the European Union.  For many proponents of this exit, businesses viewed the extreme amounts of regulation as harming competitiveness, providing one incentive for exiting from what on balance appears to be a highly gated society. Whether right or wrong, it once again brought the idea of market gatekeepers, or rentiers, back into the limelight. In effect, the idea of any modern business is capturing value and distributing it.

However, when barriers vis-à-vis regulation stand in the way or raise the costs, it ultimately results in numerous inefficiencies for all the systems stakeholders, apart from the gatekeepers which collect their periodic rents for oversight. This notion is rapidly changing as blockchain revolutionizes the idea of self-contained economies that effectively reduce and outright eliminate the purpose of intermediaries.

 

Finding Ways to Prevent Value Leakage

The present model for doing business is predicated on taking value out of a system and distributing it, instead of adding value. Taken in the context of a business’s relationship with its employee and payroll, the flaws of the current model become evident.  Many companies rely on external entities to calculate payroll, handle taxes and deductions, and eventually make the transfer from the company’s account to an employee.  This means that money effectively leaves the ecosystem without a realistic chance of it returning.  If the accountant isn’t directly employing the company’s services, this likelihood is even smaller.

Enter one of blockchain’s greatest ancillary developments; the smart contract.  Instead of relying on an intermediary or accounting firm to process payroll, a company could  program a smart contract to automatically fulfill all the conditions of an accountant.  This means programming and implementing an agreement with preset functions that are designed to pay out on an employment agreement once certain conditions are fulfilled.

Considering the capabilities of smart contracts as an independent third-party arbiter that is theoretically costless, other expenditures like human resources could be downsized, with smart contracts handling the inception and oversight of an employment agreement.  If employment conditions are not met, the preprogrammed smart contract could conceivably be used as an unbiased way to mete out consequences.  An area where smart contracts have shown immense potential is the freelance community. Instead of finding contractors via hubs that charge high fees for connecting parties in the fashion of intermediaries, companies seeking contractors can utilize peer-to-peer services like Blocklancer to reduce fees while granting each party better protections and conditions.

 

Turning the Value Chain into a Continuous Cycle

Smart contracts are just one prescient example of how a closed-economy can begin to take shape. Eventually, the idea is to translate these types of ideals into self-sustaining ecosystems that are not dependent on external actors to expand and flourish.

One of the areas where blockchain presents the most potential for upheaval is by changing the focus of the business interaction by building self-contained economies that resemble utilities and cooperatives instead of transactional relationships. Tokenization, and the rise of Initial Coin Offerings, which effectively enable businesses to raise funds from stakeholders to build a closed economy that contains and grows value over time, are one of the best examples of this changing attitude.

The value of these economies increase as participation grows, leading to a circular relationship whereby stakeholders derive value from the service, and the service providers are continuously able to build more stable relationships that drive long-term value for themselves.

A perfect example of this new relationship-based focus comes from retail innovator HotNow. The goal of the company is to help businesses deliver discounts directly to prospective consumers in return for consumers actively promoting the company. The company issues HoToKeN, which is used by consumers to unlock discounts and deals. Merchants, offering promotions, can collect spent tokens and award them to loyal consumers, helping build a cycle whereby value does not leave the ecosystem.

This system by design translates to valuable results for consumers eligible to receive discounted products and merchants able to depend on promotion from loyal customers while gleaning valuable insights from the data collected. Furthermore, it breaks the stranglehold held by advertising giants like Google and discounters like Groupon which can derive value from an ecosystem without having any obligation to return value to the ecosystem itself. Models like these are technically cashless in terms of exchange, making for ecosystems that are more frictionless and deliver value in a way that isn’t necessarily strictly confined to fiat exchange. Both consumers and merchants benefit, while no middleman sits in the middle collecting rents or acting as a gatekeeper for the activities, helping build a truly symbiotic relationship.

 

Forging Relationships to Reduce Leakage

So-called free market economies across the globe are facing a tsunami of change that is breaking down the traditional roles of middlemen and value extractors in place of more direct relationships between businesses and their stakeholders. Through the deployment of tokenization, companies have effectively landed on a new way to incentivize participation in closed-economies that are better able to contain and grow value without necessarily seeing that value escape the ecosystem. While value still exchanges hands, it may not necessarily be defined entirely by the fiat amount tied to tokens, but rather as a tool that empowers both sides of a transaction to participate, and maintain a prosperous relationship.

As more microeconomies are developed to fulfill the needs of businesses and consumers alike, these microeconomies will effectively be able to unlock greater value that is better able to satisfy each stakeholders objectives.

 

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