Observation from the perspective of institutional economics: What exactly is Web3?

Where is the innovation of Web3? How will it change the world?

Observation from the perspective of institutional economics: What exactly is Web3?

Author: Kokii
Original: “The underlying logic of Web3: the perspective of institutional economics”


• Web3 is a new economic infrastructure for coordination and exchange. It starts with a fundamental property rights system and shifts trust in complex systems from a single organization to decentralized nodes and verifiable code. It has unique economic characteristics that make it possible to complement, and in some cases directly compete with, existing mechanisms.

• Institutional economics is a subset of economics to study the role of institutions in the social and economic context with the methods of economics. The basic theoretical tools are transaction cost theory and property rights theory.

• Token is a property management tool that can represent any existing digital or physical asset, or access rights to the assets of others. Tokens on the chain can realize cryptographic property rights protection, competitive property rights innovation and efficient property rights circulation.

• Smart contracts are contracts that are automatically enforced with code guarantees. As the property rights system is subdivided and improved, many components of economic activity, including repetitive mechanical parts of production and transactions, computational rules and order, may be replaced by machines and smart contracts.

Why think about the underlying logic of Web3

Web3/Crypto is now full of new terms, making this already obscure new industry even more puzzling. From technical/application consensus algorithm, Rollup, zero-knowledge proof, DeFi, NFT, GameFi, DAO, cross-chain bridge, oracle, DID, SBT, to conceptual cypherpunk, sovereign individual, decentralization, censorship resistance , permissionless, composability, creator economy, distributed governance, Internet of Value, permanent storage, Code is Law, X to Earn, all of which are confusing, plus all kinds of regulatory bans, Ideology, scams, Pondzi, inefficient and counter-intuitive application scenarios make people really confused.

Observation from the perspective of institutional economics: What exactly is Web3?

Those who love it say it is the future, a fundamental technological change no less than the Internet; those who hate it say it is a stack of concepts, a capital bubble created by venture capital institutions, and a self-entertainment of laissez-faire Enjoy yourself.

Focusing on details prevents people from seeing the big picture. When the Internet was first adopted by a small number of geeks, it was very illusory, and no one could imagine the future development. It was full of various innovations, protocols and products. After ten years, there will be no one in a hundred. Technologies such as crawling algorithms of search engines, applications such as news portals are newspapers with browser shells, and concepts such as how network effects affect social media. These questions may be important, but they are not the core logic of the Internet. But as long as you grasp the underlying logic that the Internet “has unprecedentedly reduced the cost of information circulation”, you will be able to realize how it will drastically change society, and it will be used in search engines, social media, online shopping/payment, smartphones, online car-hailing, When local services and algorithm recommendations appear, identify wind trends.

Technological progress is more often stacked than jumped, so it is extremely difficult to predict the future, especially at the moment when policies and technologies are very early. Web3 is still very early today, and most of the products and services, business models, and token models we are arguing about will die in the bubble burst. Therefore, this article does not talk about the circuit design of ZK-Rollup, is GameFi a game with a Tokenomics shell, how composability affects DeFi, etc., and only discusses the core question: what is the innovation point of Web3? How will it change the world?

What is Web3

Web3 is a web system established by blockchain or digital asset related technologies. Definitions are used to recognize structures and mechanisms, and this definition is good enough, but equally confusing. The most accepted statement of Web3 today is: “Web1 is read-only for most users, Web2 allows users to both read and write, and Web3 empowers users to read-write-own through the blockchain.”

Observation from the perspective of institutional economics: What exactly is Web3?

But readable and writable is the interactive relationship between people and content, and the essence of ownership is the social contract relationship. The former is information, the latter is assets, and the dimensions of the two are different. Therefore, seeing Web3 as a continuation of Web2 is a misplacement of perspective. Why do people use the cheap and fast Web2 instead of the energy-consuming, expensive, slow and complex Web3?

An innovation is adopted for only one reason, to satisfy a new human need, or to better satisfy an old one. Endure complex mnemonics, expensive handling fees, public chains that go down from time to time, protocols that are used as cash machines by hackers every day, and the risk of being stolen by phishing websites, not to put things that can be done on mobile phones Go to the blockchain and do it all over again, at least not now, otherwise it’s hard to explain why someone would pay millions to buy a picture that everyone can right-click to save and that’s ridiculously ugly.

Let’s go back to square one and start with the title of the white paper: Bitcoin, a peer-to-peer electronic cash system; Ethereum, the next-generation smart contract and decentralized application platform. This article will explain that the core innovation of Web3 is in the title of the white paper: “Token” and “Smart Contract”. And try to explain from the perspective of institutional economics, Web3 is more similar to the institutional innovation of “capitalism” than the technological innovation of “steam engine”.

Institutions and Institutional Economics

Observation from the perspective of institutional economics: What exactly is Web3?

Institutional economics is a subset of economics that intersects with political science, sociology, or history, and uses the methods of economics to study the role of institutions in a socioeconomic context. A single person’s ability to fulfill his wishes is limited, and no one on earth has even produced a pencil by himself. This relies on the cooperation and contributions of graphite workers in Chile, lumberjacks in Canada, glue manufacturers in Taiwan, production line manufacturers in Germany, businessmen in China and millions of unknown people. In a modern society with a sophisticated and complex division of specialized labor, people need to trade and cooperate with countless strangers and organizations. Human interaction, especially in economic life, depends on trust. Trust is based on order, and maintaining that order relies on rules that prohibit unforeseen and opportunistic behavior, which we call “institutions.”

Why do human societies need institutions? The main reasons can be attributed to the following aspects: people’s bounded rationality (scarcity of subjective intellectual resources), the uncertainty of the objective environment, and people’s opportunistic tendencies. Institutions provide predictability of human behavior and reduce the cost of coordinating activities in large-scale human collaboration for efficient use of resources. The reason why we can give the money earned by hard work to the bank teller who forgets his appearance in the next second, and give our body to the doctor we have never met, is because they are all subject to the system. In retrospect, too many things that are taken for granted in human society actually hang on the web of trust woven by institutions.

Institutions are evolved, not the same thing as policies. When people find a better and more efficient system to replace the existing system, there will be the possibility of institutional change. The system regulates the relationship between people, and the relationship between people is a game between social relations. The situation of inconsistent interests occurs in almost all human activities. Make your own choices in order to achieve a favorable outcome for yourself. While treating the economic process as a game process, economists not only regard the system as the rules of the game, but also regard it as the result (equilibrium) of the game. As long as people repeatedly engage in transactions or other economic relationships, rules emerge through gradual evolution or human conscious design. When we look at it a little longer, all the content in history called revolution, reform, restoration, advancement, regression, etc., the most important essence of which is the evolution of the system.

Compared with law, politics, ethics, culture, sociology and even anthropology, institutional economics has different levels and perspectives on institutions. North defines the system as the rules of the game in a society. The system is the various economic, social, political and other organizations or systems formed by people. It determines the framework for all social and economic activities and economic relations. Therefore, various social disciplines Both are intrinsically related to the system and are a common category of social sciences.

Institutions in human society are all-encompassing, from constitutions to social etiquette to the coordination of traffic lights, and the importance and impact of different institutions vary greatly. Institutional economics is concerned with the creation and evolution of the institutions that have the most profound impact on the human economy. Human rational choice will create and change institutions such as property rights structures, laws, contracts, forms of government, and regulations, which will provide incentives or establish costs and benefits, and ultimately these incentives or cost-benefit relationships will over a certain period of time Governs economic activity and economic growth.

Transaction is the basic unit of human economic activity and the basic unit of analysis of institutional economics. The basic theoretical tools of institutional economics are transaction cost theory and property rights theory.

– The transaction cost paradigm forms the theoretical framework of institutional economics, without transaction costs, the use of resources is the same regardless of how production and exchange are arranged. Transaction costs fundamentally affect what is produced in the market and what exchanges take place, what organizations survive, and what rules of the game last;

– The premise of the transaction is property rights, and there is no way to talk about the transaction without property rights. Transaction and exchange are different, not the sale of commodities but the sale of rights. The property rights system is the fundamental foundation of economic operation. What kind of property rights system will have what kind of organization, technology and efficiency;

There is a difference between the property rights approach and the transaction cost approach, the former requiring an analysis of individual incentives, while the latter places the individual within a broader institutional framework, allowing, for example, the analysis of the company as an organized corpse.

a. Property rights

Property rights are short for property ownership or property rights, emphasizing the ultimate control that the owner of the property has over the property. The laws used in commerce in all countries around the world today are derived from Roman law, and the core of the concept of property rights in Roman law is the right to control. For the simplest commodity such as pencils, rights are inseparable from the commodity itself, while for complex commodities such as land, forests, enterprises, knowledge, ideas, and financial products, the right to control and enjoy it has become something that cannot be handled by simple commodity trading. Only when property rights are clearly defined can the transaction of any commodity or resource proceed smoothly, the market price mechanism can play a role, and resources can be effectively allocated.

Private property rights, common property rights and state-owned property rights basically cover the scope of property rights. Resources of different natures should be matched with different forms of property rights. Property rights are not only a relationship of interests, but also a relationship of responsibility, corresponding to incentives and constraints. Well-defined property rights restrict the way people use assets and incentivize people to maximize their value.

Property rights as control rights derive many other rights, called bundles of rights. Including the right of possession, the right of use, the right of income, and the right of disposal; the right of disposal is further divided into the right of transaction, the right of inheritance, the right of gift, and so on. The divisibility of property rights increases the usefulness of an asset, enabling people with different needs and knowledge to put a unique asset to the most valuable use they can find. For example, people with entrepreneurial talent but no assets can easily acquire the assets of others to maximize the total output of both parties; the huge capital required for major projects and infrastructure can be aggregated through the joint-stock system, and so on. From the perspective of the development trend, with the improvement of the degree of socialization of production, the transformation of property rights from unity to decomposition is the specific manifestation of the development of social division of labor in the exercise of property rights.

On the basis of the property rights system, other systems have emerged, such as enterprise system, market system, financial system, legal system, political system and so on. The foundation of innovation in the complex enterprise structure and financial market in modern society is the innovation of the property rights system. Property rights are important variables in institutional changes and institutional innovations. China, which has experienced market economic reform, should have a deep understanding of this point.

b. Transaction fees

Transaction costs are the operating costs of an economic system, which in a broad sense include system formulation costs, implementation costs, maintenance costs, and change costs. In reality, there are various systems or transaction rules, and each system has transaction costs. For example, the cost of property rights system is the cost of measuring, defining, maintaining and exchanging property rights.

Transaction cost is the core of institutional economics, and transaction cost theory can be used to study various institutional arrangements in human history and reality. In the perfectly competitive market of neoclassical economics, transaction costs are zero, and private property rights are sound. Adam Smith’s “invisible hand” can achieve Pareto optimal allocation of resources. Institutions, property rights, laws, and Specifications, etc. are optional. In real economic life with friction, many institutions are either created to reduce costs or to make possible what was previously impeded by high transaction costs.

The measurement of transaction costs is the key and difficult point of the theory. It consists of two parts: the costs that can be measured through the market. According to some estimates, transaction costs in a modern market economy account for 50%-60% of the net GDP. Include the initial cost of setting up a new system and organization; and hard-to-measure costs such as access to information, time in queues, bribery, and losses from incomplete regulation and implementation.

Specifically, real-life transactions are done through contracts. A contract is a right transfer relationship established by the parties (two or more) in order to improve their economic situation (at least rational expectations) during the transaction process. Any transaction is always carried out explicitly or implicitly in a certain contractual relationship. Modern economics regards all market transactions, whether long-term or short-term, explicit or implicit, as a contractual relationship. When a consumer buys a train ticket, there is an implicit contract between the consumer and the railway company: the consumer pays the fee, and the railway company delivers the consumer safely to the destination within the specified time.

The basic function of the contract is to maintain the cooperation of many contracting parties and encourage the contracting parties to seek new and more lofty interests on the premise of abiding by their commitments and assuming responsibilities. It is the nature of the contract system that thousands of different and subtle ownerships combine into a huge ownership; the same ownership can be reasonably separated, division of labor and cooperation, forming the owner-operator-user chain. different links. In the long process of economic development, the transaction behavior between people has been continuously expanded and evolved, and the contract has become more and more complex.

From the perspective of contracts, the transaction costs of specific transactions should include: the cost of preparing the contract (information collection), the cost of reaching the contract (negotiation, signing), and the cost of monitoring and implementing the contract.

Observation from the perspective of institutional economics: What exactly is Web3?

From property rights to Token

An efficient property rights system can transfer property rights from inefficient people to efficient people. Applying the transaction cost theory above, to achieve a more efficient property rights system, it is necessary to reduce the cost of measuring, defining, maintaining and exchanging property rights:

1. The attributes of property rights are complete. The more complete the attributes of property rights are, the more efficient the system of property rights will be.

2. The definition of property rights is clear, which is the premise for the effective functioning of the market mechanism

3. Effective protection of property rights, the better the protection of property rights, the better the function of property rights

4. The transaction cost of property rights is low, which is the basis for the smooth transaction of property rights

Every progress of the property rights system is inseparable from the above innovations. The definition of intangible assets such as patents and copyright ownership allows knowledge owners to obtain material benefits from sharing knowledge with others; the separation of ownership and management rights leads to the emergence of modern joint-stock companies; the higher the degree of legalization and marketization of a country , the more efficient the market is. In contrast, ownership of air is difficult to define, and there is a market failure for pollution problems.

Token is the atomic unit of Web3 and is jointly managed by distributed ledgers. Token originated from Bitcoin. Human beings first tried to replace the monetary system with technology, but it has obviously failed. Now Bitcoin has become a kind of digital gold. Its failure is predictable, because the monetary system is the most complex and fundamental system in human economic activity. But Bitcoin has opened a door to a new world for us: Tokens.

On public infrastructure such as Ethereum, anyone can deploy tokens at extremely low cost. As of writing (August 2022), there are over 9,000 publicly traded tokens listed on CoinMarketCap, and that’s just the number of Fungible Tokens. These FTs can be subdivided into many categories, from securities to utility to value storage to governance, with different rights corresponding to various existing property rights in real life.

The multiple roles of a token are intricate, and it can appear to be any form of economic value or access (an on-chain version): stocks, bonds, currency, gift cards, points, club membership, ID cards, academic diplomas, airline tickets, etc. While the lack of a clear definition is common in emerging fields, this does not mean that the multiple roles of tokens are a mistake, but rather reflects their properties of representing value in the most abstract sense.

Anyone can use Tokens to issue any type of asset and access, including entirely new asset classes. In connection with the concept of property rights in the previous article, a token is a property rights management tool that can represent any existing digital or physical asset, or access rights to the assets of others. If you agree with the previous statement about the importance of property rights, it should not be difficult to understand how far-reaching this event will be.

But why must property management be Token? Why does it have to be on the blockchain? The numbers in Alipay are also proof of property rights, and they are more efficient. It is not enough to just invent a concept, the implementation of the concept requires the support of the application. Compared with off-chain property rights, the core advantages of Token are: cryptographic property rights protection, competitive property rights innovation and efficient property rights circulation. At the same time, the underlying property rights innovation is the cornerstone of complex economic activities, such as contract innovation (smart contracts) and organizational innovation (DAO).

a. The protection of property rights in cryptography

Only with the background of protecting property rights can people be concerned about the efficiency and operation issues under the protection of property rights. In the complex property rights mechanism of modern society, the bottom-level scheduling relies on state management. Because the state has the corresponding rules to order its internal structure, and has the coercive power to implement the rules and compete with other states, that is, the state has the advantage of “violent potential” compared with other organizations.

Violence is also a resource in essence. It includes not only the military, police, prisons and other violent tools, but also intangible assets such as authority, privilege, and monopoly power. The violence here does not carry any derogatory color. The system is evolved from the mutual restriction of individuals. The current logic of property rights protection is so because it is more efficient for the state to undertake this function. The more effective use of the resources of state violence is that it is violence against violence, and its function is to produce and sell (taxation) a definite social product: safety and justice. If we are in anarchy, all have to resist others to defend their property, state violence can achieve scale effects and prevent “free-rider” problems.

But the government’s protective function is limited. Among the protective functions of the government, a considerable part is achieved through government regulation. There is a tendency in the protective function of government to favor an emphasis on security at the expense of fostering the ability to coordinate and control competing systems, and thus prosperity. In addition, the globalization of information and capital has made transnational transactions and collaborations more and more frequent. At this time, the protection of a single country is often insufficient. When geopolitical conflicts intensify, trade exchanges are even more divided.

Blockchain/Web3 is a new economic infrastructure for coordination and exchange with the state. It uses cryptography to protect the security of property rights, starting with the most fundamental property rights, and transferring trust in complex systems from a single organization to decentralized nodes and verifiable code. It has unique economic characteristics that make it possible to complement, and in some cases directly compete with, existing mechanisms.

b. Competitive property rights innovation

Due to the influence of the property rights system, the evolution of property rights has been slow in history, but every progress will have a huge impact. The current on-chain economic system has little to do with the real economy, and innovation is much more radical. Web3 uses technical means to ensure no access, low threshold, open source and competitiveness, which makes the basic Token innovation emerge in an endless stream. “One day in the currency circle, one year in the world”, the original meaning is that the rise and fall of Token is much more severe than that of traditional assets, which also shows that in such an open and competitive market, there are new standards, protocols, and products every day. Generated and quickly validated and eliminated by the market.

For example, in the definition of property rights, NFTs that capitalize digital information, such commodities cannot be freely exchanged before tokenization. Although the current real application is only on avatars and digital art that look purely toy, this is because the current ERC-721 standard does not really open the right bundle of digital information property rights, which leads to searching for application scenarios according to the map and finding It can only be found in a show-off economy with no risk of performance and what you see is what you get. But new protocols that are constantly being updated, such as ERC-4907, which can separate NFT ownership and usage rights, and non-transferable SBT, are constantly exploring real use cases and will immediately be eliminated by the market. Many brilliant minds are exploring how to use NFTs to create a fairer creator economy and more open games.

Another example is the composability of DeFi protocols in attribute definition. Combined with the automatic performance features of smart contracts, which will be described in detail later, new DeFi applications can securely access existing DeFi applications, which is equivalent to adding functions and rights to the original Token out of thin air, and can obtain liquidity from other protocols to improve capital utilization efficiency.

For example, in the business model, there are all kinds of dazzling Tokenomics designs. The same Token can be divided into a series of rights bundles, holding ETH can pay the gas fee, use it as the base currency for interacting with the Ethereum ecosystem, and enjoy the currency price appreciation brought about by the ecological prosperity of Ethereum, and can also be used after Merge. Enjoy dividends by staking. Token holders are both clients and owners. Introducing the property rights that are separated from the business under the traditional company system into the business logic, and connecting the business flywheel and the financial flywheel with Token as a link, can motivate users in the early stage to accelerate the reaching the critical point of network effect. Although some models have been criticized as Ponzi and death spirals, the exploration of such business models is meaningful.

Observation from the perspective of institutional economics: What exactly is Web3?

From contract to smart contract

With property rights, the next step is to trade. A smart contract is essentially a contract that guarantees automatic implementation with code. The name is bluffing, but smart contracts are actually not smart and clumsy, and a bug can lead to huge amounts of money being attacked. Similar to replacing salesmen with vending machines, replacing centralized exchanges with AMMs can reduce transaction fees, trust costs, and the risk of people in the process, improve the speed of asset circulation, and speed up price discovery.

Can algorithms really replace contracts? Going back to transaction cost theory, in other words, can algorithms reduce the cost of preparing a contract (gathering information), the cost of reaching a contract (negotiation, signing), and the cost of monitoring and enforcing a contract? The ideal is very rich, simple transfers, over-collateralized loans, and execution with computers/codes/machines/smart contracts are of course the lowest cost, but the economic activities between people are so complex, the current smart contracts are even the most basic credit loan contracts, employment contracts. (the cornerstone of DAOs) are not well implemented.

The computational nature of smart contracts makes them more suitable for handling full contracts. But in real life, because contracts involving human capital face higher measurement costs than physical capital, most contracts are incomplete contracts. In the theory of complete contract, the contract clauses specify in detail the rights and obligations of each contracting party under different circumstances, the situation of risk sharing, the method of enforcement of the contract, and the conditions of the contract when the unpredictable future time corresponding to the contractual behavior occurs. the final result that can be achieved. In the incomplete contract theory, due to the bounded rationality of individuals, the complexity and uncertainty of the external environment, information asymmetry and incompleteness, the parties to the contract and the arbiter all know that the contract terms are incomplete, and they also need to Harmonize different incentive-restraint mechanisms to fill gaps in contracts, correct distorted contractual terms and accommodate unexpected disruptions more effectively.

Contract imperfections can be mitigated to some extent as the cost of measuring, defining, maintaining, and exchanging property rights continues to decrease. There are many “computational” components in economic activity and contracts, and we used to use human simulations to perform calculations. But with the advancement of technology, today’s computers, especially the development of blockchain smart contracts, are closer to the nature of computation. In depositor’s and bank’s deposit and withdrawal contracts, complex check verification needs to be assisted by bank tellers, and ATMs have replaced bank tellers as banking systems and cards continue to reduce the cost of monitoring contracts. Also in the employment contract between the employer and the employee, the output of the employee needs to be evaluated subjectively by the employer. With the evolution of the standard assembly line, the piece rate has replaced the employer’s evaluation.

The machine/code contract is superior to humans in that it is precise and efficient. When the property rights system is sufficiently advanced, whether due to technological progress or institutional progress, the computing system can greatly reduce transaction costs, improve accuracy, and replace humans as the leaders of contracts. The trend can be seen from the complex Meituan take-out scheduling system. The huge system connects riders, merchants, and customers in series, which involves the signing and performance of multiple complex contracts:

– Cost of preparing contracts: Merchants present product information on the platform for customers to choose from

– The cost of reaching a contract: the customer signs the contract using online payment, the rider selects the employment contract from the system allocation, and the merchant accepts the order to prepare the goods

– Cost of monitoring and enforcing contracts: rider/merchant rating system, the system automatically calculates and settles rider and merchant income

The contract is the result of the free choice of the parties without interference and coercion. It includes the freedom to sign a contract or not, the freedom to choose the party to sign the contract, the freedom to decide the content of the contract and the freedom to choose the contract method. Any third party, including the state as legislator and judiciary, should respect the free consent of the parties. One of Web3’s claims is to bring down the Web2 giants because although they provide the above freedoms on the surface, in essence, the cost of revoking the contract is very high. The creators of blockchain and smart contracts are the makers and maintainers of the rules. They are not necessarily the participants themselves. The participants are people in the world who do not know each other. When more and more property rights are clarified and placed on the chain, imagine a takeaway scheduling algorithm running on Web3 without the participation of Meituan, or a more generalized contract system, making the formulation and maintenance of rules open and competitive It will create fairer and more efficient rules and reduce the tragedy of the brutal growth of platform power such as “takeaway riders trapped in the system”.

Observation from the perspective of institutional economics: What exactly is Web3?

As the property rights system is subdivided and improved, many components of economic activity, including repetitive mechanical parts of production and transactions, computational rules and order, may be replaced by machines and smart contracts. The financial system has developed property rights, clear calculation rules, and high transaction costs. Therefore, the transformation difficulty is low and the economic benefits created are large. It is not difficult to explain why DeFi is the first explosive application direction of Web3.

The future of Web3

The logical chain goes down. In the future, we may communicate and produce off-chain, while the formulation, performance and supervision of contracts related to economic activities are all on the chain, which greatly reduces transaction friction and improves the efficiency of resource allocation. It sounds a little cyberpunk, and it is always pleasant to imagine the future, but it is clear that the current Web3 is definitely not the ideal Web3 described above, it is just a state of chaos. Different from the information properties of the Internet, due to its inherent economic properties, gamblers and liars flock to it, and due to its profound revolutionary significance, ideologues who love to speak big words do not hesitate to preach.

Progress cannot depend on realists who speak only of reality and idealists who speak only of ideals, but requires realists who speak of ideals and idealists who speak of reality. Vitalik is the last type of person. We all know the unsatisfactory phenomenon, but the point is to solve the problem. We still have a lot of work to do, which also means that there are many business opportunities:

– Cryptographic innovations, such as better consensus algorithms, privacy protection, virtual machines, programming languages, sharding, zero-knowledge proofs, decentralized storage, etc.;

– Improve user experience, such as better developer tools, easy-to-use wallets, cheap transaction fees, strict asset security, etc.;

– Connect with reality, such as more accurate and decentralized oracles, simpler fiat currency Token conversion, more ownership of physical assets, real-world contract on-chain operation, DID, SBT, etc.;

– The intervention of regulation, even if it can compete with the existing system in the long run, short-term integration is the only way;

– …

As for the application, what other rights can be represented by Token? What kind of transaction rules should be designed to reduce the transaction cost of Token? How can ordinary users with no programming background simply create their own smart contracts? How should organizations based on property rights and contracts evolve? There is a long way to go, and there are still many innovations worth exploring.


On the issue of economic development, “technical determinism” and “institutional determinism” are two representative viewpoints. Neoclassical theory holds that economic growth is mainly constrained by factor input and technological progress, and institutions are only adjusted passively or with a lag; Institutional economists believe that the most fundamental factor is institutional progress. It is the efficient economic organization and appropriate incentive system arrangements that lead to the rise of the Western world and the outbreak of the Industrial Revolution.

It is very difficult to separate the system and technology decisively. Their relationship is actually that you have me and I have you. The so-called determinism of the two is ultimately linked to cost, and their performance on social and economic development can be analyzed by cost. Considering innovation as a system, technological innovation and institutional innovation are two indispensable components, and only when they are combined can they complement and interact.

Although the Internet is more of an innovation in information technology, it also brings a flatter and borderless form of organization. Although this article is all about thinking about the logic of Web3 from an institutional perspective, the advancement of technology is also quite important. In addition, the analysis of more complex institutions such as organization, cooperation, enterprise, and even state theory will have the opportunity to expand later due to space constraints. The author is not a professional scholar of institutional economics. I just want to provide a new perspective to think about Web3. Welcome to exchange.








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