Human primitive society is based on the social contract, from which we can understand the relationship between tribes, what professional division of labor they play, or what kind of people are responsible for hunting and defending tribes? What kind of people are responsible for collecting food and building houses.

Far back in the early days when modern people stood on the stage of history, we would exchange physical materials by barter. Signing contracts is a relatively modern phenomenon. Let’s begin to learn to exchange promises instead of materials. It’s just a verbal agreement. It has too much room for interpretation, and it’s easy to forget. Even if there are witnesses, the guarantee may not be so reliable, and it’s even more important to cooperate with strangers It is full of suspicion and distrust. Unless the contract can be executed immediately, if the fist is not big enough, there is no other formal mechanism to ensure that the other party will act in accordance with the contract.

How to reduce the cost of blockchain

The written contract can clearly list the rights and obligations in black and white as the basis for building trust and expectation. If any party fails to make the initial commitment or has an accident, it can be used as the basis for subsequent solution. However, these functions will not appear out of thin air. The signing of the contract must have the basis of legal framework to protect the rights and interests of all parties. Now the contract is still made up of atoms rather than bits, so there are many limitations that can not be broken through, and it can only be used as a simple text to record the protocol.

Next, we will see that if the contract is built on software, that is, the smart contract distributed on the blockchain, it will open a new world full of possibilities. It will not only make it easier for the company to integrate with external resources, but also what will the unified algorithm on the blockchain look like? It’s quite imaginative.

The cost of performance within the enterprise will be lower than that of market transaction. Basically, it is a tool to convert a too cumbersome short-term contract into a long-term contract. Oliver Williamson further pointed out that the existence of enterprises is to resolve conflicts. The specific approach is to use contracts to collect all different objects. If it is in the open market, the only dispute settlement mechanism is to go to court, which is expensive, time-consuming and often unsatisfactory. Williamson also pointed out that it is impossible to stop illegal acts such as fraud or conflicts of interest To be able to solve disputes through the market, he said that in fact, there are almost everything about contracts in the organization, which can make the enterprise become the final judge. Therefore, it is possible to implement the norms that cannot be implemented by the market. In order to treat the enterprise as a governance structure established with contracts, the important task of the organization is to reduce the cost of managing transactions and return to performance Contracts, not money.

These ideas usually give us a deeper understanding of the complexity of economic units. Other economists are all the most straightforward. They think that the essence of enterprises is nothing but a combination of contractual relationships. Some blockchain architects with extraordinary vision also take this view. Vitalik Butlin, founder of Ethereum, advocates that the representatives of the enterprise, that is, the business executives, can only use the company’s assets after they are approved by the board of directors for certain purposes, and the board of directors itself should also be approved by the shareholders of the company What the company has done must be because the board of directors agrees that it should do these things. If the company recruits employees, it means that the employees agree. Under certain conditions, the most important condition is, of course, salary and treatment, and the provision of labor services to the company’s customers. If the company has limited responsibilities, it means that some people have extra privileges and can be exempted from being punished by the government Legal demands.

This group of people enjoy a little more rights than ordinary natural people, but they are still living under the institutional arrangement. No matter what, all the institutional design can not escape from the combination of human and contract. That’s why blockchain can reduce the cost of performance. Let the company establish a new relationship with the outside world. Take the water supply system company for example, they can establish complex contractual relationships with various members. Some things are inside the company, some things are outside the company, and some things are in the vague area between the two, because the smart contract can replace the traditional manager management and control diversified relationship, and let the participants control themselves Distribute the plan content, set up the delivery conditions, and get the reward after the delivery. All these can be handled from the blockchain.

Editor in charge: CT

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