Journal Articles

Blockchain and the Evolution of Institutional Technologies: Implications for Innovation Policy

Forthcoming in Research Policy

Abstract: For the past century economists have proposed a suite of theories relating to industrial dynamics, technological change and innovation. There has been an implication in these models that the institutional environment is stable. However, a new class of institutional technologies — most notably blockchain technology — lower the cost of institutional entrepreneurship along these margins, propelling a process of institutional evolution. This presents a new type of innovation process, applicable to the formation and development of institutions for economic governance and coordination. This paper develops a replicator dynamic model of institutional innovation and proposes some implications of this innovation for innovation policy. Given the influence of public policies on transaction costs and associated institutional choices, it is indicated that policy settings conductive to the adoption and use of blockchain technology would elicit entrepreneurial experiments in institutional forms harnessing new coordinative possibilities in economic exchange. Conceptualisation of blockchain-related public policy an innovation policy in its own right has significant implications for the operation and understanding of open innovation systems in a globalised context.

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Journal Articles

Governing the Entrepreneurial Discovery of Blockchain Applications

Forthcoming in the Journal of Entrepreneurship and Public Policy

Abstract: This paper examines the institutional context of the entrepreneurial discovery of blockchain applications. It draws on institutional and entrepreneurial theory to introduce the economic problem entrepreneurship in the early stages of new technologies, examines the diversity of self-governed hybrid solutions to coordinating entrepreneurial information, and draws policy implications. To perceive a valuable and actionable market opportunity, entrepreneurs must coordinate distributed non-price information under uncertainty with others. One potential class of transaction cost economising solution to this problem is private self-governance of information coordination within hybrids. This paper explores a diverse range of entrepreneurial hybrids coalescing around blockchain technology, with implications for innovation policy. Defining the innovation problem as either choice-theoretic or contract-theoretic changes the remit of innovation policy. Innovation policy and blockchain policy should extend beyond correcting sub-optimal investments or removing barriers to action, to incorporate how polices impact entrepreneurial choices over governance structures to coordinate information.

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Journal Articles

The Governance of Blockchain Dispute Resolution

Forthcoming in the Harvard Negotiation Law Review

Abstract: Blockchain technology acts as infrastructure for self-executing smart contracts. Because contracts are incomplete and some parties are opportunistic, these new contracting possibilities have created challenges of dispute resolution. For instance, will smart contracts be recognised, and any disputes resolved, within the existing courts of jurisdictions? In this paper we first map some institutional governance possibilities for contracting parties (e.g. mediation, private arbitration, courts) to create a Dispute Resolution Possibility Frontier (DRPF). Second, we provide case studies of emerging blockchain-based mechanisms to solve dispute resolution challenges. Blockchain-based smart contracts might not only create dispute resolution problems, but also act as a technology for entrepreneurs to create new mechanisms to solve dispute problems, including those arising from traditional legal contracts. Contracting parties will subjectively interpret their most effective governance mechanism to resolve disputes, and the costs of dispute resolution will change over time through a process of institutional innovation.

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books

Cryptodemocracy: how blockchain can radically expand democratic choice

Book published with Lexington.

Abstract: A cryptodemocracy is cryptographically-secured collective choice infrastructure on which individuals coordinate their voting property rights. Drawing on economic and political theory, a cryptodemocracy is a more fluid and emergent form of collective choice. This book examines these theoretical characteristics before exploring specific applications of a cryptodemocracy in labor bargaining and corporate governance. The analysis of the characteristics of a more emergent and contractual democratic process has implications for a wide range of collective choice.

Reviews

“The problem of democracy is that it simultaneously invests power in the people while removing any incentive to use their power wisely. Cryptodemocracy is a thorough and rigorous investigation into an innovative solution: Turn votes into a kind of tradeable property right and allow voting markets. New blockchain technologies allow us to overcome the problems of older voter market proposals. This is a book that deserves to be widely read and discussed—and we owe it to ourselves to experiment with its suggestions.”
— Jason Brennan, Georgetown University and author of Against Democracy

“Public choice theory has now ossified around the conventional practices of voting and legislation. In this volume, Darcy Allen, Chris Berg, and Aaron Lane show how that ossification might be transcended by bringing ideas from blockchain technology to bear on democratic governance. While the authors recognize that they have not written the final word on this topic, they have surely created a template that will provide analytical points of departure for pursuing political economy in new directions.”
— Richard E. Wagner, George Mason University

“We stand on the edge of revolution not just in the way democracy works, but in the very idea of what democracy can be. Blockchain technology can immediately solve all the problems of voter fraud, low turnout, and expensive recounts, while expanding the ability of citizens to delegate their votes and register their views on important topics that are now decided behind closed doors. This landmark book is the first thing I’ve seen that understands the potential, both benefits and risks, of the cryptodemocracy on the horizon — a turning point in the literature connecting political science and technology.”
— Michael C. Munger, Duke University

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Articles

For Tassie exporters, paper trail risks vital trust

[This article was published in the Hobart Mercury]


Tasmania’s producers are perfectly placed to receive higher export prices by taking advantage of blockchain technology.

Applying blockchain to Tasmanian supply chains will deliver more trustworthy information to consumers, boosting prices of high-quality super-premium exports.

The State Government recently announced Brand Tasmania as a statutory body, tasked with promoting tourism and exports.

Building Tasmania’s brand is important. But this approach must be coupled with a way to ensure consumers trust the legitimacy of products

Supply chains connecting Tasmania to the world don’t just transport physical products like cherries, wild abalone or lobsters. They carry information about those products. As a customer in a Beijing restaurant, how can I know the lobster on my plate is true Southern Rock Lobster, not some cheap knock-off?

I must trust the restaurant owner, who trusts their supplier, who trusts their importer, and so on.

Particularly for high-information premium produce, there is an often-neglected type of supply chain infrastructure, one that carries trusted information between companies and across borders.

Today’s supply chains are riddled with problems. Pieces of paper pass between distributors, exporters, shipping companies and governments. This messy web of communications tries to connect hundreds of parties.

Some information is added along the way, but much is lost or tampered with.

Global food fraud estimates range to tens of billions of dollars a year. This comes from bad actors taking advantage of poor information flows. This has even happened with Tasmanian cherries. Cherries being sold in China and Vietnam were recently outed as fakes, sold in fraudulent “Tasmanian-grown” boxes.

The result is deeply damaging to a premium brand. Eventually prices will fall as premium produce is contaminated with fakes.

After the cherry controversy the industry responded by making more intricate boxes. Gold embossing and unique stickers helped deter fake cherry boxes. But this approach also cut deep into profit margins.

Luckily there’s now an alternative. Blockchain technology can carry detailed transparent information from producer to consumer.

Blockchain was invented in 2008 to power the cryptocurrency bitcoin. The technology enables data to be inputted and stored in a way that doesn’t rely on a central third party. Distributed ledger technologies are important and unique because we constantly use centralised companies and governments to update and hold information about our citizenship, medical records, bank balances, property titles.

Blockchains are different because they store information across a decentralised network. The word blockchain comes from the data structure — blocks of information chained together chronologically using cryptography. Blockchains aren’t stored and updated by a central party, making it extremely difficult to tamper with it. This is perfect for situations like supply chains where many parties need to share information who don’t necessarily know or trust each other.

What does this new distributed ledger technology mean for Tasmanian supply chains? Rather than passing pieces of paper between opaque organisations, a blockchain can act as a new digital infrastructure for supply chain information.

Each product or shipment can be given a blockchain-based digital representation.

As the lobster physically moves, information about it can be added to its blockchain-based record, forming a deeper digital identity.

This begins with the provenance of the product, but extends into its temperature and conditions during transport, such as its time at a distributor or waiting in a port.

Some information will be inputted manually by producers, or even governments as the goods cross borders. Other information will come from Internet of Things (IoT) infrastructure that automatically uploads information such as about location and whether the container has been opened.

For consumers, producers and governments, this new digital infrastructure creates a richer digital identity that can be viewed by all stakeholders.

This viability increases product integrity. Through a simple scan of a QR code, consumers can consult a tamper-proof record of a lobster all the way back to Tasmanian shores. Blockchains can provide the information that consumers are increasingly demand, such as proof of single origin or organic production.

Current supply chain processes are simply too fragmented and expensive to provide trusted information.

Thankfully there is an enormous amount of private investment in building new digital infrastructure using blockchains. IBM and shipping company Maersk have built a product called TradeLens. Australian companies and platforms such as AgriDigital, Agrichain and UCOT are also leading the charge. Given we can only expect more examples in coming months, what steps should Brand Tasmania take?

This experimental technology upgrade will require new trials and tests. New industry consortia will need to be co-ordinated and formed. And regulatory barriers and red tape removed, including at the border.

Only then will we see the full potential of this new blockchain-based digital infrastructure for Tasmanian producers, and the brand value and price premiums that come with it.

Dr Darcy Allen is with the RMIT Blockchain Innovation Hub and the Worldwide Blockchain Innovation Association.

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Articles

Blockchain and the manufacturing industry

[Together with Chris Berg and Jason Potts this article was published in the Australian Technology Manufacturing Magazine]


Bitcoin was invented in 2008 by Satoshi Nakamoto as a censorship-resistant cryptocurrency built for the internet. With regular fiat money centralised bodies such as banks and governments control the records of who owns what. For bitcoin those records are held in a decentralised blockchain. Blockchains are updated and maintained by a decentralised network. To ensure the transactions and records are correct, economic incentives to continually drive the blockchain network towards consensus.

Applications of blockchain extends beyond records of money. We rely on trusted third parties to maintain our registries, enforce our contracts, and maintain our records. Entrepreneurs are now discovering which roles carried out by third parties such as governments and firms will be shifted towards blockchain-based decentralised networks.

Blockchain is now being applied to trace goods along supply chains, to give control of medical records to patients, and to create decentralized identities that help people move across borders.

What does blockchain mean for Australia’s manufacturing industry?

At first glance manufacturers produce physical products and then transport those goods to consumers. More deeply, the manufacturing process is heavily reliant on databases of information in multiple directions along their supply chains. This is especially true for advanced manufacturing. When goods and inputs move, information about them must move too. This includes information about the provenance of sub-components and intermediate parts, information about the integrity of rare products prone to counterfeit, and information about ethical standards in production.

It’s harder to produce this supply chain information than you think. The information must be coordinated between hundreds of parties in the supply chain. Most of those parties don’t know or trust each other. And this information is still often paper-based or siloed within organisational hierarchies. The result is a trail of information about manufactured goods that is prone to error, fraud and loss. And these problems only get worse as supply chains get longer in a globalised world, and manufactured goods become more complex.

Blockchain technology presents a different way to govern supply chain data that centres on the movement of the good itself. Rather than passing pieces of paper between supply chain participants to track goods, information can be recorded in a decentralised blockchain. In practice goods are given a digital representation. Then as the goods move, information about them is timestamped in an immutable blockchain. Importantly this information is stored outside of organisational boundaries, making blockchain an alternative mechanism to solving the age-old problems of provenance and quality. What information is stored in a blockchain could be the historical location of a good, who produced it, how it has been stored, and who has finance on the goods.

Supply chain information extends beyond a single supply chain. To produce a complex product involves first mining raw materials, transforming those into intermediate parts, before manufacturing of the final good. Blockchains are critical here because they can track goods and components across multiple supply chains, giving more visibility and traceability deeper into complex manufactured goods.

Blockchain supply chains will leverage other frontier technologies such as the Internet of Things (IoT). Containers and products will contain sensors to record information such as GPS location and temperature. This information won’t be sent to a centralised party, but recorded cryptographically into a blockchain. This information can help consumers in verifying genuine products, assist producers in creating analytics of consumer demand and ensuring their inputs are legitimate, and governments in ensuring compliance with domestic rules and regulations.

The first and most obvious application of blockchain in supply chains has been in agricultural products such as wine, meat and seafood. The common characteristic of these goods is that they are information-rich. Information about their provenance and stewardship is often hard to verify by observing the final goods, but radically affects the price that consumers will pay.

This means the next wave of applications is likely to be other high-value information-high goods. Goods that are highly-customised, such as 3D printed medical devices, aeroplane parts and pharmaceuticals, are perfectly poised to apply blockchain technology.

Blockchain in advanced manufacturing is more than just tracking goods once they’ve been produced. We can use blockchains to coordinate the highly valuable digital files that sit behind many of these products. How can you ensure that the CAD file being 3D printed was the one originally intended? Similarly, blockchains are being used for intellectual property rights, helping to ensure compliance in an increasingly digital world.

In the physical manufacturing process itself blockchain can be used to record information about the lifecycle of manufacturing equipment. We can now have more cost-efficient and credible auditable ledgers that extend beyond organisational hierarchies.

What we have proposed here is a general movement away from intermediaries being trusted to maintain information about goods and their production, towards information governance through decentralised blockchain platforms. To be sure, many of these applications are in the trial and experimental phase. But they represent an early fundamental shift in how we organise information across the entire manufacturing supply chain.

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Journal Articles

International policy coordination for blockchain supply chains

Published in Asia & the Pacific Policy Studies

Abstract: From the adoption of the shipping container to coordinated trade liberalization, reductions in trade costs have propelled modern globalization. In this paper, we analyse the application of blockchain to reduce the trade costs of producing and coordinating trusted information along supply chains. Consumers, producers, and governments increasingly demand information about the quality, characteristics, and provenance of traded goods. Partially due to the risks of error and fraud, this information is costly to produce and to maintain between dispersed parties. Recent efforts have sought to overcome these costs—such as paperless trade agendas—through the application of new technologies. Our focus is on how blockchain technology can form a new decentralized economic infrastructure for supply chains by governing decentralized dynamic ledgers of information about goods as they move. We outline the potential economic consequences of blockchain supply chains before examining policy. Effective adoption faces a range of policy challenges including regulatory recognition and interoperability across jurisdictions. We propose a high‐level policy forum in the Asia‐Pacific region to coordinate issues such as open standards and regulatory compatibility.

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