The digital economy is everything that happens around us. It is the use of digital technologies and infrastructure, computers, means of communication, and any optimization programs. Initially, it was considered to be an expanded concept of the Internet economy, which includes related market segments.
This view is somewhat outdated: economies that traditionally considered themselves part of the “real sector” are inevitably becoming more “digital.”
And this is where the main difficulty arises. How can we calculate the role that the digital segment plays in the economy? While this is not so difficult for an internet giant like Google, it is more difficult for a company that manufactures washing machines.
The machine will not turn on unless a person presses the display, but washing is clearly non-digital in nature. So what part of the washing machine service should be considered digital?
The most basic process of the digital economy is optimization.
This process involves the collection, analysis, and processing of data with the gradual replacement of manual labor by machines. Such optimization leads to a reduction in costs across the board. Now it is easier to make a chip and drill a hole in a material.
Once work has been streamlined for simple processes, it is possible to move on to more complex ones. Additional value is created through constant complication, the creation of more complex algorithms in production. At some point, optimization begins to work for specific requests. For example, cars appear that are partially custom-made. Conceptually, they are the same, but the color, door shape, anti-corrosion coating, and other features are selected for the customer depending on where they live and so on.
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In the days when people worked on assembly lines, standardization was very useful; it helped workers to produce the same parts with high quality. Computerization, on the other hand, allows you to create a unique product on a mass scale. The product itself becomes cheaper because production costs are reduced. With robots and computers, each subsequent machine can be made individual.
The main breakthrough technology in the field of digital money is distributed ledgers
They are often called blockchains, although a blockchain is just a special case of distributed ledgers.
A distributed ledger is not limited to a single server or a single authority. It often means that every device connected to a distributed ledger has access to all the data contained in that ledger. An intuitive example of one of the simplest distributed ledgers is Wikipedia. Any user can edit an article, and then other users and editors accept or reject the edits.
Of course, money uses more complex distributed ledgers than Wikipedia, but there are also certain rules by which users can, for example, edit something, accept or reject a transaction. And, accordingly, ensure that the exchange of money takes place without a centralized authority.
Tokenization, i.e., the representation of any physical object in digital form, is closely related to distributed ledgers. The simplest token is any digital currency. At the beginning of 2021, everyone was talking about a new trend where people who produced digital products or artworks issued digital tokens and sold them. For example, the founder of Twitter sold a token of his first tweet, Beeple sold his works at Christie’s auctions, and Canadian singer Grimes sold several of her videos and paintings as tokens.
Blockchain is fundamentally no different from earlier principles of economic decentralization
There are a dozen ways to store data and exchange it in human history. As an economic historian, I can say that we have seen similar progressive examples before. The fact that a steam engine works like a bull, like the wind, or like water falling into a watermill does not make the breakthrough it brought about unimportant. On the other hand, technologists tend to draw conclusions without knowing history: their favorite invention is the Great Revolution that changes everything. My job as an economic historian is to question such heated speculation.