Blockchain and the Scarcity of Scarcity #3 #cong17

By Sean McGrath.

Sean McGrath #3 Blockchain and the Scarcity of Scarcity

Much has been written about how the digital economy differs from the physical economy (for example Google's Chief Economist's book Information Rules - . Nicholas Negropontes book Being Digital). Perhaps the most important difference of all relates to the concept of scarcity. In the physical world, many business models are based on scarcity of some commodity or skill. For example houses are scarce. So too are brain surgeons. Both have a lot of value precisely because they are scarce. If there was an abundance of houses or of brain surgeons they would cost a lot less.

It is not overstating to say that economics is all about scarcity. British economist Lionel Robbins put it like this: “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”

Today, technology is systematically disrupting many scarcity-based business models. Newspapers, music, the ability to book a flight, these are all examples of things that used to be scarce. Before electronic media – in particular the Web – there were only a small number of newspapers and only so many copies available per day. Before electronic media there were only so many copies of each paper book available. Only so many travel agent shops you could visit to book a flight. Only so many copies of each music album, each VHS cassette etc.

In the digital realm we increasingly live in today, making perfect copies of digital things is not only trivial and cheap – it is the default mode of operation of computers. Computers never send data to other computers. They copy data to other computers. To say that the removal of scarcity in the digital world challenges many economic models would be understating it. Ask any lecturer, author, musician or journalist for example. All these professions are struggling with the ease with which digitized work product can be endlessly replicated without any economic benefit accruing to the original creators.

Digital rights management (DRM) systems have proven very challenging to implement because of resistance from users, complexity of the DRM technology and the ease with which the hacker community seems to have been able to work around each of them.

Blockchain is a new and emerging technology that takes a new approach to DRM. A new approach to introducing scarcity in the digital world. Perhaps unsuprisingly it has arisen out of a desire to create a reliable form of purely digital currency: Bitcoin. There is perhaps no better example of a concept based on scarcity than money.

Blockchain technology allows any asset - digital or physical - to be tagged – via a hash code – and then associated with an owner in a global, tamper evident, digital equivalent of a paper transaction ledger. By registering ownership – and all transfers of ownership of digital assets, on this distributed ledger – it becomes possible to implement much more reliable and user friendly DRM systems. I.e. given a stream of bytes on a disk, a movie player might only play the movie for you, if it finds that you are a registered owner on the ledger. A birth certificate in digital form might be admissable for all legal uses that require birth certificates because its provenance and authenticity can be established.

Now is this a good or a bad thing? On one hand, it could re-energize industries that are struggling because of digital disruption of scarcity based business models. It could also create entirely new forms of business models we have not thought of yet. However, it could also be argued that artificially re-creating a form of scarcity in a medium that removes the need for scarcity, just to “prop up” business models that depend on it, is a retrograde step.

It can be argued that much of the disruption and new opportunities unleashed by the digital revolution can be attributed to the scarcity of, well, scarcity! If we re-introduce it, will we start going backwards? Perhaps in a new blockchain-based world, scarcity will be abundant again?

CongRegation © Eoin Kennedy 2017 eoin at congregation dot ie