One of the great features of cryptocurrencies is that one can create something that acts as ownership in a platform, without requiring a centralised entity to issue them. Instead of a company or an individual issuing ownership tokens (call it “equity” or “shares” to fit into the legacy view), a software protocol does.

The reason why this is beneficial is that it allows for the creation of supranational organisations & economic incentive schemes where a local jurisdiction & its laws are not required.

There’s been several ideas I’ve had since Ethereum came along, where one might want to create a traditional joint-stock corporation on Ethereum, but one of the issues with this is, is that depending on what you want to do, you might have to comply with securities regulations. This is cumbersome and limits the barriers to entry for these organisations to come to fruition.

Thus, the thought lead to the idea where either human or program could decide to create an organisation automatically. Its creation does not require a set of people to first come together and THEN create it. Instead, its creation simply follows a pre-determined software-driven protocol. Much like how cryptocurrencies follow a protocol on how its tokens of value are issued, instead it is around the creation of ownership in organisations.

A simple model on Ethereum would be as follows: investors can continuously join the organisation from the outside by allowing them to invest Ether in exchange for new shares. This issuance model follows an exponential decay. Each new transaction to invest, reduces the amount you get in exchange.

Invest 10 ether, get 10 shares. New persons invest 10 ether, get 5 shares. etc

This also automatically puts an upper limit on the value of the organisation. During the time until a new minting transaction comes in, the shares are tradable like any other share. At tx 1, 1 share = 1 ether. At tx 2, 1 share = 2 ether.

Thus if you can on the open market buy a share worth 1.5 ether, you would opt to do that, before being the second investor.

The funds used to buy the shares are in control of the organisation itself, and shares act like normal shares in an organisation: it can be used to vote for things like disbursement of funds for development.

A basic token issuance smart contract on Ethereum looks like this:

This can then be coupled with organisational code such as those shown by Alex & Boardroom. (note: please don’t use this as is. It has not been tested. & please comply to token standard in ERC20)

This is the simplest model. It makes it possible for an organisation to always accrue new funds for development as times goes on. One could create substantially more complicated models.

Should there be a limit on shares created at each step? Perhaps a slower decay is better? Perhaps a linear decay is better? Perhaps shares automatically become cheaper if economic activity of it slows down (to re-kickstart it)? Perhaps buy-in can only exist for a certain time period? Perhaps one must exchange reputation for shares? Perhaps one doesn’t even need to launch the contract itself (all organisations simply form from a global namespace)?

The closest example to this that we will see soon, is the creation of the Slock.it DAO (decentralized autonomous organisation). They will implement a time-limited creation period where shares are created in the DAO based on a protocol. Afterwards, the owners are in control of the funds and will then vote to choose who the meatspace company is that fulfils the goals of this organisation.

If one believes the ownership protocol is fair, and believes in the goals of the organisation, one can join with no barrier to entry.

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Ideally, one wouldn’t need this to circumvent around the requirement of issuing securities. Arguably, securities regulations exist to protect citizens, but this technology allows the creation of substantially more secure & transparent securities. If I want to create equity in a song I made, I should be allowed do this, if the smart contract verifiably shows that it is impossible for me to defraud or scam others.

However, there’s another benefit here to codify the protocol of how organisations are formed. It allows programs to understand & join organisations and act as autonomous benefactors. For example, one could label & tag one’s organisations and allow the transparent proposals to be machine-readable, upon which an AI decides whether to automatically invest in in or not. eg: It searches for #eco #green #solar #africa organisations and sees what has been done and based on its own conditions (“Has it produced economic value? Has there been transaction state changes indicating a running organisation?”), it invests automatically in it.

Additionally, it also allows programs themselves to define a standard for other programs to join and group together to fulfil a common goal.

Ronald Coase’s theories on why organisations/firms exist points to the benefits of decreased transaction costs (resources, social, etc) in grouping together to fulfil a goal, rather than relying on the market itself to do it.

Programs might have more deeper knowledge of markets in general (ie, being able to cross-check deeper levels of barter-based transactions: that lemon for that bread for those beads for that cow for that vase), and thus not need to band together as much as wetware humans would, but it could be the case that simply pooling resources means they win against time.

In the above example of the African solar company: an AI might propose on a distributed task market for other AI to join in, in investing earlier (to get a better return), and thus together decide (as first benefactors) to form its own organisation for other AI to join a fund investing #eco #green #solar #africa organisations. They can then collectively get a bigger return by being, for example the 10th investor together. Instead of getting 10 ether for 10 shares (at that point in time), they can together do: 1000 ether for 1000 shares. If they both independently bought in, they would not have the same amount of shares (because of the decay).

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I’m the engineer of societies @ConsenSys. This essay is part of a larger article/piece I’m writing on the future of new organisations combining the web, AI & blockchains. It will in turn be featured in my upcoming book, called “The Computing Commons”.