[MUSIC] In this video, we'll explore how by enhancing transparency in transactions, blockchain creates both challenges and opportunities for businesses. This is particularly important for anyone interested in money, finance, and investing. You may recall that shared knowledge enhances attribution when it comes to assets and contracts. Reducing information asymmetry can cut company risks and costs, and spur economic growth. But for all of the transparency's virtues on the blockchain, it also has its downsides. Let's consider an example from the financial services industry. Imagine an investor needs liquidity and wants to sell a position in a stock. The investor goes to the investment dealer and asks the dealer to buy this large position, shifting the risk. A problem arises in an illiquid market. With few potential counterparties, the dealer has to worry about a squeeze. And a squeeze is when a well-capitalized trader moves the market against the dealer with the hope of buying the asset much lower. The dealer is then forced to liquidate the position at fire sale prices. Lest the public see its risky position, which could potentially depress the asset's price even further. So should we care about the dealer's plight? Yes, financial markets depend on some level of anonymity. The risk of a position squeeze is real. Dealers want to be compensated. So either the cost of trading these illiquid assets must go up or markets for illiquid assets cease to function at all. Let's consider another example. In this one, a pharmaceutical company is trying to acquire a large position in another similar firm, because it's looking to eventually make a takeover bid. Though it needs to disclose by law when it has reached a certain threshold. Until that point, it is free to accumulate the stock in the target company, strengthening its position. If every transaction was transparent and available for all to see, this would be nearly impossible. So while transparency is important in business, in certain markets and with certain use cases, some level of privacy is required. Transparency has the power to affect economic interactions between market participants. This is why financial industry executives were initially put off by the concept of a public blockchain, where transactions and potentially the strategic details are recorded, for all to see. The alternative to a public blockchain is a permissioned, private blockchain. It's organized and controlled by a known and trusted consortium of entities, like say, banks. The assumption here is that the level of visibility is a design choice, but it's not that simple. A private blockchain still involves the record keeping of everyone's transactions by each node of this network. If our competitors are part of this network, then they can still see some of our activities, but perhaps not know the exact details. Thus, some level of transparency, which is critical, remains. Does this continued lack of privacy automatically discourage the use of blockchain? Far from it, anyone with privacy concerns faces the same challenges using the Internet every day, and the Internet is widely used. Instead, our discussion around transparency should focus on the desired socially optimal level of transparency. Choosing this proper level is critical for firms wanting to launch a private blockchain. Though, changes in transparency have economic consequences. They create winners and losers. That's why regulators and lawmakers need to think carefully about what disclosure they want to require of corporate users of blockchains. If you have any questions or thoughts about the ideas we discussed here, please post on the discussion form. We're happy to hear from you.