Digital and IT

A Brief History of Connectivity: The Birth of Decentralization

  • Oliver Beige
  • September 02, 2021
Blockchain Tech for Companies

In 1991, social scientist and Nobel laureate Herbert Simon invited us to participate in a somewhat alien-sounding thought experiment. Imagine an extraterrestrial observing human behavior with a special telescope. Instead of showing us as we are, the telescope allows the observer to recognize social structures: Organizations appear as green blobs, interactions between organizations as a network of red lines between the blobs.

Herb Simon used this thought experiment to raise one fundamental question about human nature: No matter which society we live in, capitalist market economy or socialist planned economy, we like to conduct the vast majority of our economic interactions inside those green blobs and rarely ever venture outside onto the red lines. Why?

Most of the green blobs we encounter, be it for-profit companies, non-profit organizations, or states, tend to have three things in common. They’re bounded, usually hierarchical, and — at least in theory — accountable

Accountability is the outcome of accounting, a discipline as old as civilization itself. It’s not easy to make accounting interesting, but for now, we only have to keep in mind what it is trying to accomplish: To keep track of things by recording when they change hands or when they change in value.

Ultimately this is what allows us to rent things out, to buy something but pay later or in installments, to keep track of things we own and things we owe, of claims and obligations.

While far from perfect, accounting creates the trust for investors to give money to entrepreneurs and managers, and it is the starting point for investigations — audits — when things go wrong. In summary, accounting is the base layer on which we can assemble value chains — inside the green blobs.

So it is no surprise that the first mainframe computers found a home in the basements of banks and insurance companies to do “accounting arithmetic” in the words of Herb Simon: Record and summarize business transactions.

Simon himself played a major role in the next major step of turning computers from oversized calculators to decision support systems — he is still the only economics Nobelist with a Turing Award. You simply need to add two things to the original accounting triple of who owns thingswho holds things, and what‘s their value: Where are things and what condition are they in, to move from accounting to planning, and from value chains to supply chains.

Once you allow things to sit in different warehouses, you can think of building and storing things in different locations. Once you source things from different locations, you can think of sourcing them from different companies in different locations. We are now leaving the green blob and are stepping onto the red lines between them.

1_7uWWk2lEPqxNUFnb-PFnSwIn the hype phase around 2017, much has been made about blockchains as some sort of cumbersome replacement enterprise database. This is both imprecise and misleading.

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