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Understanding the digital economy

Many economies today are in a profound transition from an industrial economy to a digital economy. But what is a digital economy?

The digital economy represents a fundamental restructuring of what an economy looks like.

In this video, Darcy discusses the implications of the digital economy with Distinguished Professor Jason Potts. Watch the video and then read the following to better understand the digital economy.

What is a digital economy?

A digital economy is commonly distinguished from previous waves or epochs of economies. For example with the growth of machines, factories and companies, agrarian economies became industrial economies. Now industrial economies are transitioning to digital economies. This all seems quite straightforward — most of us already have digital technology integrated deeply into our everyday personal and work lives.

But the shift from an industrial economy to a digital economy is misunderstood and underappreciated. Many people assume a digital economy is just an industrial economy, with the same old sectors, but a bit more digital.

Let’s look a little more deeply at the transition. Many economies today think they’re digital, but we are really only in the first digital age. We have some cheap communication and computation technologies, and they have transformed many of our economic structures to large digital centralised platforms.

However the full opportunity of the digital economy is not yet realised. We’re only at the beginning of building out the new stack of economic infrastructure (more on this in the next step). The Web3 stack underpins this digital economy stack. Web3 gives us new types of contracts, organisations, monies and property rights that are more decentralised, permissionless and open.

When we think about the transition from agrarian, to industrial, to digital, this suggests a change in the outputs of an economy — that we are producing not agricultural outputs, or industrial outputs, but digital outputs. But a digital economy is digital because the inputs are digital. Those inputs are trusted digital property rights, contracts, data and identities.

Ultimately this suggests a deep change in the structure of our economies as we move from industrial to digital. A digital economy is not simply an industrial economy on the internet, with a few more digital outputs.

As Distinguished Professor of Economics Jason Potts explains in this video, a digital economy is a foundational shift in the structure of our underlying economic infrastructure.

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