#004 Blunt Economics Part 3: Digital Economy
3 min read

#004 Blunt Economics Part 3: Digital Economy

We are one more issue away from finishing this series, and in Blunt Economics Part 1: Death of Growth, I discussed reasons for the growth rate to slow down.

But we completely ignored the digitalization, to focus on it separately.

In Abhijit V. Banerjee's and Esther Duflo's book - Good Economics for Hard Times, authors explore the possibility of Facebook and other social media launch with a decrease in productivity. I would say, Don't blame technology. We have progressed because we want to be lazy.

What is interesting, though, is how we are gradually transitioning to the digital economy.

actual photo of $40k house

You can buy a fucking house near my home town of Rostov-on-Don or C.S.: GO AWP skin, what would you choose? And it is by far not the most expensive digital item.

One of the first blockchain mass adoption narratives was the digital collectibles narrative. We have yet to see the adoption and massive growth, but blockchain-based items are already breaking charts. Take, for example, Dragon Crypto Kittie.

The last sale was at 600 ETH, currently valued at around $200,000

Digital art is starting to make some noises, and recent Blockparty 36 hour full sold-out is a case in point.

If you want to learn more about NFTs and blockchain-based items, check Andrew Steinwold's newsletter. You'll have a blast.

So, more and more activity is going on digitally, especially in secondary markets. And it's increasingly harder and harder to account for all of that.

Add free services like Facebook on top of that. The study by The Harvard Business Review and Felix Eggers compares A.D. revenue with generated consumer surplus.

The average revenue per user is only around $140 per year in the United States and $44 per year in Europe. While median consumer surplus of about $500 per person annually in the United States, and at least that much for European users.

Right here, you have a multi-billion dollar hole in GDP calculations.

Advances in the digital economy are not surprising. We are spending more and more time online, networking, and communicating with people.

We play more video games. And if online becomes a bigger and bigger part of our day-to-day life, we care about it more. I want my friends to know that I'm a cool kid on the block. I don't need a new bike. I need a new AWP!

Consumer spending on gaming in the United States from 2010 to 2018, by segment(in billion U.S. dollars) by statista.com

Hence the amount of dollars spend is increasing year over year. But that's not all, there is a substantial secondary market, and it's tough to estimate it's size.

But there is a massive problem with the secondary market of this sort. You don't own these items, even if you have them in your account or wallet. Other companies and people control them, distribution, and have a tremendous amount of power over markets.

Reddit user and owner of a trading website gathered and published rare, hard to find data. As you can see, Valve's actions impact the number of deals. But that's not all.

Due to one change of in-game mechanics in 2013, prices of legacy couriers dropped from $35,000 to $4,000, practically overnight.

Blizzard is well known for notoriously suspending accounts for selling game content or accounts for real money.

Bottom Line

So what do we have here? Online content plays more significant parts of our lives. Hence, we have to retain ownership over them. We have to have tools to prove electronic authenticity and ensure scarcity.

That is why I'm bullish on blockchain.

Full Series:

#002 Blunt Economics Part 1: Death of Growth
#003 Blunt Economics Part 2: Where did the money go?
#004 Blunt Economics Part 3: Digital Economy
#005 Blunt Economics Part 4: Change or die trying

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