The new distributed digital technology world trade and MNEs: another step in the inventive process

Major innovations are about reducing transactions costs. This has been true since the beginning of the Industrial Revolution and it continues along the inventive process in the last 220 years. The innovative technology of blockchains and cryptocurrencies with smart contracts (distributed digital technology) has a potential for substantial reduction of transactions costs that are rooted in human nature. Like earlier transformational innovative technologies, such as the steam locomotive and the internet, the new distributed digital technology may create disruptions in the market today, but if successful it will increase welfare by transforming the way that people transact in the market in the future. The major feature of the new digital technology is that it makes it possible for individuals to match their supply and demand without intervention of organisations like firms, financial intermediaries and regulating agencies. The new digital technology gets us closer to the neoclassical perfect market model. Distributed digital technology progresses in a step-by-step fashion. The first step was the Bitcoin: electronic peer-to-peer cash transfers without the need for central regulations. A number of services, particularly those that can be traded digitally, are next in line. Two potential applications of distributed digital applications are global trade in services and to MNEs.

Automated summary

Innovative technologies, such as blockchain and cryptocurrencies with smart contracts, have the potential to reduce transactions costs and transform the way people transact in the market, leading to potential disruptions but ultimately increasing welfare. The new digital technology enables individuals to match supply and demand without interference from organizations, moving towards a neoclassical perfect market model. The progression of distributed digital technology, starting with Bitcoin and moving towards services and global trade applications, is a step-by-step process.