How Blockchains Are an Economic ‘Force Multiplier’
I was recently reading Nick Szabo’s post Transportation, divergence, and the industrial revolution. It’s a great read and I recommend it (and pretty much anything that Nick writes).
It offered a really powerful explanation for why the economies of northwestern Europe evolved so quickly compared to other regions in the centuries leading up to the industrial revolution.
The key point was that it came down to how easy it was (relatively) to locate the food for the horses near to the horses which powered the region’s economic engine. In that era, horses did everything. It’s why we still use the term “horse-powered.”
What made the post so fascinating is that he explains the economic development of Europe in terms of Metcalfe’s Law. The analysis comes down to how the value of the economy increased as the nodes in the network connected to each other increased.
He quantified it in terms that, well, it’s not easy for me to conceptualize, but is powerful:
the potential value of a land transportation network is the inverse fourth power of the cost of that transportation. A reduction in transportation costs in a trade network by a factor of two increases the potential value of that network by a factor of sixteen. While a power of exactly 4.0 will usually be too high, due to redundancies, this does show how the cost of transportation can have a radical nonlinear impact on the value of the trade networks it enables.
It’s the last point that is critical…the “cost of transportation can have a radical nonlinear impact on the value of the trade network it enables.”
But not all transportation costs are equal. Land transport is far more expensive than sea transport. So, according to Szabo,
Decreasing the costs of getting to port from field or mine by a factor of two increased the number of fields and mines accessible by a factor of four, and increased the number of possible ways to divide labor, and thus the value, by an even greater factor via Metcalfe’s law.
When all is said and done, it comes down to this…the cheaper it is to transport physical goods over land, the greater the possibility for exponential economic growth.
Long Lead In, Here’s the Blockchain Connection
This got me thinking and I went back to Jamie Burke’s post on blockchain-enabled convergence.
What that post did for me, more than any other I have read, was help me understand how blockchains are just the enabling layer for many more things.
They enable AI, drones, and in our current blog post framework, 3D printing.
Now, with blockchains, you can download a 3d model and print it on a home printer and you can guarantee that the property owner’s rights and royalties are protected.
So, if you need a part for a machine, you know you are getting the right part, that is authentic and the creator is getting paid.
This, then, makes it possible for any creator to feel comfortable putting his designs on line because he knows his intellectual property is protected.
The Cost of Land Transportation Goes to Zero
So, let’s bring it all together.
When you buy a desk at Ikea or a trash can or almost any material based item, the price you pay has to cover the cost of transportation of that item.
The item had to
- go on a truck/rail from the factory to the ship
- on the ship
- back on a truck
- to a loading dock
- and then moved by people (or machines) to its final point before being distributed to you.
Imagine instead that either you have a 3-D printer at home or there’s a store that is just for 3-d printing items (like a Shapeways but in the mall).
In this world, you order your desk from IKEA (or whomever), pay for it in whatever format is necessary, and download the design to a “3d Printing Center.” They then print the pieces for you using your material of choice and putt them in the same box you would normally need.
(Obviously, you can do this at home, but that’s probably not practical in the first phase.)
So now, you go to the “3d printing center” and pick up the same desk, bring it home (or have it delivered) and have the same headaches assembling it as you normally would.
Only this time, the desk itself hasn’t traveled any farther than the “last mile” from the mall to your home.
That’s a HUGE cost that has been taken out of the system, making the price lower for you AND enabling IKEA (or whomever) to now offer their products in many more locations globally.
For example, you don’t need to set up an entire supply chain to offer your products in sub-saharan Africa, you just need a relationship with a local 3-d printer shop.
Talk about a force multiplier!
Clearly, there are many items which may not be conducive to 3d printing, but plenty of them are and will be.
By reducing the land transportation costs of the physical items to near zero, we open up a world of trade potentialities.