Many crypto enthusiasts are looking at blockchains as a way to correct the sins of the past (government over-reach, lack of sound money, expensive middlemen, centralized businesses, etc.)

The truly important question should be way bigger than this: How can crypto-powered businesses create new types of abundance? How will blockchains drive our standard of living forward exponentially? How will we see the creation of tens of trillions in new value like we did with the stock market in the last 150 years?

The answer lies in how crypto can transform the tragedy of the commons into the wealth of the commons.

There are many types of businesses

Throughout history, there have been many types of businesses. In ancient times people used barter. In medieval times we had feudalism. Later, mercantilism, then free-market trading along the lines of Adam Smith’s “invisible hand,” later augmented by the “visible hand” of the modern corporation. As long as we discover new ways to create value, new types of businesses will emerge.

In today’s world, there are four major types of businesses: A Sole Proprietorship, a Partnership, a Limited Liability Company, or a Corporation. Almost all big companies today are Corporations, consisting of a Board of Directors, Shareholders, Managers, and Employees. Startups take this form as well, since they want to be the big companies of tomorrow.

Large Corporations are relatively new

Because we have large corporations all around us, it’s easy to assume businesses have always looked this way. But in 1800, almost every business was a sole proprietorship. Then the railroad and the steam engine created a massive change event. The opportunity to span the country with a transcontinental railroad turned out to be a catalyst for large corporations that would bring enormous abundance to the world through mass production and mass distribution.

Nobody had the money to fund big railroads on their own. So, JP Morgan convinced people (mostly in Europe) to buy fractional ownership units called “shares” of stock to raise enormous sums of money. By pooling the resources of a lot of shareholders, large railroads became possible to fund. A share of stock was a new way to invest in the future profits of a large-scale corporation.

Would you have wanted stock in a railroad?

Investing in stocks is obvious today, but imagine you were a blacksmith or fur trader in 1870, and someone offers a share of stock in a railroad. It wasn’t “valuable” like money because you couldn’t go to the store and buy things with it. And you couldn’t say to a train conductor “I want to use my share of stock to take a ride on this train.”

Imagine you’re a British aristocrat in 1870, and your primary assets are in European land. Do you invest some of your “old money” wealth into the New World stock markets in search of better growth prospects? Land is tangible and known. Stock in a railroad is a walk on the wild side. Do you feel lucky?

Would you want to buy a share of this railroad in 1870?

Suppose you run a railroad. How do you organize it? How would you represent the interests of the shareholders since the CEO of the company is not the sole proprietor? The governance of corporations had to evolve through vision, as well as trial and error: a Board of Directors elected by the shareholders, a CEO chosen by the Board, and the rest of the organization reporting to the CEO. This structure was not obvious to people at the time: It was an emergent development.

If you find crypto capitalism dynamic and confusing, you can get a sense for the confusion these founders and investors had to navigate.

Scalable Corporations created massive abundance

Despite this initial uncertainty, the stock market created massive value for humanity. After taking the railroads public, JP Morgan proceeded to help organize US Steel, General Electric, and many other companies. GDP per capita increased 14-fold in real terms from 1800 to 2000. We often underestimate what a miracle the last 200 years have been for our standard of living.