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In this general overview article intended for non-experts, I define blockchain technology and some of the key concepts, and then I elaborate four specific applications that highlight the potential economic benefits of digital ledgers. These applications are digital asset registries, blockchains as leapfrog technology for global financial inclusion, long-tail personalized economic services, and net settlement payment channels. I also highlight key challenges that offset the potential economic benefits of blockchain distributed ledgers, while arguing that the benefits would outweigh the potential risks. The overarching theme is that an increasing amount of everyday operations involving money, assets, and documents could start to be conducted via blockchain-based distributed network ledgers with cryptographic security, and at more granular levels of detail. One economic implication of widespread blockchain adoption is that the institutional structure of society could shift to one that is computationally-based and thus has a diminished need for human-operated brick-and-mortar institutions.
Keywords: blockchain, economics, payment channels, distributed ledgers, cryptocurrencies, cybersecurity, cryptoeconomics, long tail markets, digital goods, smart assets, smart contracts, streaming money, programmable money, lightning network, digital asset registries, eWallet
Introduction
Blockchain (distributed ledger technology) is a network software protocol that enables the secure transfer of money, assets, and information via the Internet, without the need for a third-party intermediary such as a bank (Swan, 2015). Transactions are validated, executed, and recorded chronologically in an appendonly tamper-resistant database, where they remain available on the Internet for on-demand lookup and verification. A digital money system such as Bitcoin is the first and perhaps the most obvious application of blockchain technology. Money can be transferred immediately in real-time from one continent to another, at very low costs, and in a matter of seconds or minutes, instead of waiting days or weeks, and paying high commissions, as is the case with current international money transfer and remittance solutions. Just as the simple mail transfer protocol (SMTP) constitutes the underlying protocol by which Internet users can send an email to each other in a seamless and interoperable way, regardless of their email provider, likewise, the Bitcoin protocol allows people to seamlessly transfer money to one another, regardless of their bank. However, digital currency is but one application enabled by blockchain technology. The four main kinds of applications in development are...