The Ultimate Takeaway From The Rise of Blockchains is The Importance of Incentivization

From monarchy to republic, planned economy to market economy, both have proved a history of decentralization, and the cornerstone of decentralized development is the incentive mechanism. 

From the vast history of humankind, it is not difficult to see that those very successful countries must have created more advanced incentive mechanisms.

For example, the “Joint-Stock Company”, a social incentive mechanism that changed human destiny, once created the first marine empire, the Netherlands.

The Dutch East India Company, considered to be the first truly joint-stock company in humankind, reached its peak in 1637, with a market value of 7.2 trillion U.S. dollars — nearly seven times higher than Apple.

Once the “shareholding” company was created on the earth, the hype over “stocks” began to be rooted in human genes.

In 1711, the British Nanhai Co., Ltd. was established. By 1719, the share price of the South Sea Company had risen from £128 at the beginning of the year to more than £1,000 in July. The speculators included more than half of the lawmakers, and even the king could not help but tempted to subscribe for shares worth 100,000 pounds. Of course, the stock price of the South Sea eventually broke, falling from more than £1,000 to around £100. We call it the “South Sea Bubble”.

Photo: Wikipedia

Isaac Newton also participated in this hype, and expectedly, ended up losing a lot.

Although the South Sea bubble burst, the rise of joint-stock companies in Britain has brought great strength to its colonial expansion and the industrial revolution. Later, France learned it soon. In 1716, it adopted a similar approach to the United Kingdom and gave the “Mississippi” company the right to sell stocks. By mid-1719, the stock price of the Mississippi company had risen for 13 consecutive months, and the stock price had risen from 500 The river rose to more than ten thousand rivers, an increase of more than 20 times. But Mississippi’s stock price eventually broke down in 1721 and finally fell back to 500 Rivels. History has called the “Mississippi Bubble”.

(Photo: devastatingdisasters.com)

In the 19th century, the United States began to rise, and there were endless bubbles in rubber company stock prices and railway company stock prices. In the 20th century, the U.S. manufacturing stock price bubble broke out, including IBM and Texas Instruments, which can drive the price-earnings ratio to more than 80 times within a year, but fell back to 20–30 times a year later; In the 1990s, another high-tech stock bubble burst in the United States.

The rise of the Netherlands was accompanied by the prosperity of the shares of the Dutch East India Company and the birth of the world’s first stock exchange in Amsterdam; the colonial expansion of the United Kingdom and France and the industrial revolution were accompanied by the stock price bubbles of the South Sea and the stock prices of joint-stock companies such as the Mississippi bubble, and then the development of joint-stock companies. The United States has become a world hegemon, where it has been accompanied by stock price bubbles again and again.

However, except for “shareholding” companies, is there any other incentive mechanism for the development of the human economy?

The reason why joint-stock companies have a strong incentive mechanism is that in the past 300 years, humans have mainly focused on production problems. It requires a strong system to stimulate production. Joint-stock companies make capital and professionals more relevant.

Combining with the national law as a guarantee (the monarch cannot override the law), so that those who own the shares can continue to obtain benefits, this form of shares has become an unchallenged consensus in the market, mobilizing the entire market to invest resources All its potential.

On the other hand, suppose that the shares you own may be deprived of violence at any time. Who would be willing to invest and who would desperately risk innovation? Therefore, the creativity stimulated by the shareholding system has caused mankind to stagnate the economic aggregate for thousands of years and began to rise linearly.

However, since the development of the human economy, its needs have changed. Although human needs for material are still very strong, there is greater demand for distribution systems and new incentive mechanisms that break national boundaries.

Joint-stock companies can still play an important role, but behind a joint-stock company is the state, which is a specific or even exclusive legal system. If the guarantee of a specific legal system is lost, the stock will lose its wealth attribute and the incentive mechanism will be Invalid.

(Photo: medium)

The blockchain will further promote the logic of the shareholding system. The blockchain can allow the subject matter of equity to exceed the limits of specific countries, that is, it can be transferred and bought and sold without the protection of any national law.

Undisputed consensus system. For example, the subject matter of blockchain equity such as Bitcoin has reached a global consensus and has produced incredible incentives. The price “bubble” is similar to the various stock price bubbles after the birth of the shareholding system, indicating a new Arrival of incentives.

It can be said that the blockchain we understand now is just a technology, so it is still very narrow in terms of its development and use. This was like the East India Company, the South China Sea Company, and the Mississippi Company.

At that time, it was used only for the government and the king to solve debt problems and distribute wealth from colonial robbery. It did not expect the role of the shareholding system in the history of human development.

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