Invisible hand of blockchain

Author: Yuliia Puzanova

Can you imagine that your laptop or smartphone will participate in blockchain very soon? Yes, you, probably, observe recent years a lot of discussions about cryptocurrency, Bitcoin especially, the blockchain, mining and how different governments express their opinion regarding the legalization of mining, cryptocurrency, and blockchain overall.  

The future of blockchain technology and the Bitcoin should be considered separately. The blockchain is promising technology which can be used in many spheres, while the future of Bitcoin is ambiguous. There are some skeptics who do not believe in a good future of Bitcoin. Especially, Cecilia Skingsley, the Swedish Central Bank Deputy Governor, expressed her point of view at World Economic Forum in Davos this year against Bitcoin as a currency and said that it can be possibly used only as an asset. One of the reasons for this statements is its high volatility (Figure 1). Moreover, The Nobel laureate economist Robert Shiller also said that he tends ‘to think of Bitcoin as an interesting experiment, it’s not a permanent feature of our lives’ and ‘we should broaden it out to blockchain, which will have other applications’ and emphasized several times that it seems to be the next bubble in financial system rather than a future for it. In this blog post, we will try to figure out the main aspects of blockchain technology and how different countries are preparing for this future.

Figure 1. Average USD market price across major Bitcoin exchanges

Data source: blockchain.info

The blockchain is not only about cryptocurrency. It is a transparent, credible, and immutable record of transactions. Put simply, it remembers all operations which were made with information contained in some storage. This data repository is not located just inside of one particular computer but is copied among millions of them. Blockchain technology provides the decentralized database which contains blocks with data and it is impossible to change it insensibly. Block can contain the following information: a vote, birth certificates, titles of ownership, money, contracts etc. Also, blockchain allows making a transaction without any intermediate party. For example, in a case of money transfer, we should include now the financial institution between sender and receiver of money, the third trusted party could be eliminated using blockchain, no need to rely on the governmental or financial institution to oversee the transaction or confirm the property rights. That is why blockchain is a very promising investment last 5 years and it continues to accumulate investments (Figure 2).

Figure 2. Blockchain annual global financing. 

Equity funding (excl. initial coin offerings)

Data source: CBINSIGHTS

In WEF Report ‘Realizing the Potential of Blockchain’, Don Tapscott and Alex Tapscott wrote that ‘this second era will be powered by a clever combination of cryptography, mathematics, software engineering and behavioural economics’ and some governments are preparing actively for this new era and trying to implement technology in some of the possible directions: contract, asset or identity management, financial transaction management and even voting. 

Estonia can be fairly claimed as a leading blockchain nation. Estonians data is decentralized and distributed ledger cannot be erased or changed as Kaspar Korjus, e-Residency Managing Director, stated in the blog post. But blockchain is not only used to make Estonians life clear and open. We also have to remember about economic benefits. In 2014, Estonia launched the e-Residency program. Its aim is to give a possibility to anyone receive a digital ID secured on blockchain to get an access to Estonian online services for registering a business, to manage it remotely, declare taxes and have an access for banking and international online payment services. As a result, 4272 companies from 143 countries¹ were established in Estonia and brought to the country EUR 2.5 million (as at end of October 2017) total direct taxes, according to the analysis conducted by Deloitte². By 2025 it is expected to reach nearly 1 million e-Residents and each company can bring to Estonia approximately EUR 70,000 of direct (state fees and taxes) and indirect (job creation, incremental demand, increased administrative efficiencies and country brand) net profit, as reported by Deloitte. Moreover, in prospect, each euro invested for the program development will bring 100 euro of the total return. Summary of the assumptions behind direct benefits and cost base conducted by Deloitte Estonia in 2017 is represented in Figure 3. 

Figure 3. e-Residency financial analysis

Data source: 'Key Stakeholders’ Report. Estimated Economic Impact Analysis of the Estonian E-Residency Programme', Deloitte Estonia, 2017

Georgia also made a breakthrough using blockchain. In 2016, the country launched a project with The Bitfury Group and the Blockchain Trust Accelerator for registering the land titles in blockchain to eliminate the manipulation of the property registration data. Moreover, in 2017 a new agreement with Bitfury about the usage of blockchain technology to other government departments was announced. Marc Taverner of Bitfury said at the Legal Tech conference that new registration system helps to ‘have the whole process done in 10 minutes instead of three days’ and to reduce operational costs up to 90%. Furthermore, blockchain was applied for land registry in Ghana, Sweden, and Honduras. 

Not only mentioned countries are testing new technology. China, Canada, the United Kingdom, Brazil, USA, and others are running pilot blockchain-based applications for government services (Figure 4).

Figure 4: Blockchain in the public sector (as of March 2017)

Source: Deloitte analysis in conjunction with the Fletcher School at Tufts University.

There are many of experts’ views regarding the future of blockchain. IBM Institute for Business Value and The Economist Intelligence Unit conducted a research on the basis of 200 surveys of government leaders in 16 countries and according to Executive Report 'Building trust in government. Exploring the potential of blockchains' 90% of surveyed government executives plan to invest in blockchain technology for applying in financial transactions, asset and contract management, regulatory compliance by 2018. 

One thing is clear: we cannot count out the transformational influence of blockchain technology on economic development. However, the future impact of it is difficult to be evaluated due to not very long track record. Most of the projects presented now are as a trial or in a beta testing stage.

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^{[1] https://e-resident.gov.ee/↩
[2] "Key Stakeholders’ Report. Estimated Economic Impact Analysis of the Estonian E-Residency Programme". Deloitte Estonia, December 2017 (provided by e-Residency)↩}

"Too much math, too little history"

Author: Irakli Barbakadze
 

I want to continue the topic which Nino started some blogs before. Nobel Prize statistics but focus more on “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” (There is no Nobel Prize in economics :)). 

It is interesting where the economics as a science is going to and how we, as students, should follow the trend. The actual topic nowadays in economics is the topic called “Too much math, too little history”. This means that economics is mostly based on math and data science and there is not sufficient history behind it. There are many sources of data and literature to find the answer this question but here we use the statistics about Nobel Prize Laureates in Economics.

The graph #1 shows the number of Nobel Prize Laureates in different fields of economics. We divided the data into two periods (before 2000 and after 2000). The graph represents that there are some disciplines in economics without Nobel Prize winners during 15 years and on the other hand, there are disciplines with Nobel Prize winners only after 2000. This means that we see a significant progress in some field of economics while the other disciplines are not progressing as much.

Graph #1. Number of Nobel Prize Laureates by field of economics

Source: www.nobelprize.org

Let me start analysing from the least progressing fields without Nobel laureates in the last 15 years.

•    Development economics, economic growth, economic growth theories, welfare economics and welfare theory – in the last 15 years there were no Nobel Prize winners from these fields. This means that there is no significant improvement of the growth and development theories. This means that everything is still based on the Solow/Classical/Neo-Classical growth models.  On the other hand, economic growth and development are very demanding topics nowadays.

Let’s have a look the number of publications which are published in these fields. We see that Economic growth theory is a field of economics which was one of the leading in the last century but after 2000 this field is not progressing at all. On the other hand, disciplines such as welfare economics and welfare theory progressing quite well in terms of a number of publications (we use google scholar statistics which is not very precise but give us the general picture).We can definitely say that these fields are still demanding among scholars.

Graph #2. Number of publications in each field of economics

Source: Google scholar

Short summary: So, it is interesting that such demanding topics in the 21st century, such as development economics, economic growth and welfare economics are without Nobel laureates after 2000. This means that there is no significant progress in these fields. We still use neo-classical growth models with some modification and try to explain why countries growing rates are not the same. The most noteworthy case is Economic growth theory. Here we observe a huge amount of publications which are mostly empirical but not the theory itself. Is it “lack of theories”?

 Graph #3. Number of publications

Source: Google scholar

Another very interesting insight from the graph 1 is that in the case of international economics we see no Nobel Prize laureates after 2000. While we are living in the interconnected world (age of globalisation) and everybody is talking about an export, import, foreign investment and other topics which are very connected to international economics. On the other hand, we have Nobel laureates in regional economics. This means that regional cooperation between/within countries is a much more actual topic among scholars than countries international cooperation.

The graph #3 presents that regional economics is progressing more rapidly than international economics in terms of a number of publications. This result makes sense because all the aspects of international economics such as export, import, FDI and other are mostly related to regional level. So, “gravity aspect” matters.

Let’s switch to most progressive disciplines of economics

•    Labour economics, experimental economic, economic psychology and economic governance – all these fields are strongly connected to human psychology. So, we see a high collaboration of two science: psychology and economics. The logic of such link goes through the human behaviour. We know that in economics one of the main subjects are households. Their decisions affect both labour and goods market. On the other hand, households behaviour is mostly coming from their individual psychology.

So,  economic science is behaviour science and all the factors which affect humans’ behaviour also affect economics in general.

We should analyse also the following disciplines: microeconomics, econometrics, the economics of information, financial economics, game theory, and macroeconomics. These are the disciplines of economics which are progressing permanently. We observe many Nobel Prize laureates during the history (before and after 2000).

The most logical conclusion of the blog will be to ask yourself in which direct economic science is going to... (Check your master topics, best measure :))

Do not forget to watch this video as well following video.