Economic Clustering (EC) applies economic laws to Distributed Ledger Technology (DLT) in order to enable scalability in large networks. This document will limit the scope of Economic Clustering to the Directed Acyclic Graph (DAG) structure of the IOTA Tangle.
In DLT each node usually processes and stores a local copy of the entire ledger. Due to their global nature and increasing adoption, this approach will necessarily run into scaling issues. While memory is cheap, bandwidth and latency are the first expected to cause issues. Economic Clustering offers infinite scalability for the entire system while keeping the requirements for individual nodes low by splitting the global ledger into economically relevant clusters. The concept is backed by economic laws.Introduction Scalability in Real World Economics
Inspired by global real-world economy which does not suffer such limitations, EC tries to apply their concepts to DLT. The most important of these is the concept of hierarchical locality: the global economy (we will call it the global level) is a system composed of smaller national economies and the relations among them. Recursively, these national economies consist of many regional economies which are connected with each other. And once again, regional economies are a multitude of companies and individuals interacting with each-other within their regional economy. We will stop zooming in at this last level and consider it the atomic level (the elements of this level are the atoms) at which we cannot undertake further divisions.
It is important to note that the global level does not physically exist as a separate entity but is an abstract term describing the entire system. In fact, the system consists of billions of atoms interacting with each-other. While the global level is highly complex, no atom is fully aware of the entire picture but only follows their own self-interest and interac...