Think of a company that offers a service that helps people track their assets and transfer the same to others on the basis of validated instructions—similar to a current account with cheque facility. Think of the same company as hiring people to do this and paying them for their effort with shares in the company—sweat equity. Think of this company as being in operation since 2009 and the value of its shares spiking to $ 1,200 before stabilising at around $ 200 over the past two years. Think of this company having a current market capitalization of around $ 5.5 billion.

Now, what if this company were to have no human managers but only programs on multiple computers interacting with each other! Is such an unmanaged company possible?

Strangely enough, it is possible, it does exist today and it is called Bitcoin. The only twist in the tale is that the only asset being tracked by the company also happens to be the shares in the same company, that is Bitcoins!

Bitcoin, that hit the headlines in 2013 when its price surged to $ 1,200 in international markets, has been viewed, and promoted, as a new kind of currency called cryptocurrency. Thanks to its features that guarantee anonymity, it was quickly adopted by the underworld and used in massive cross-border, illegal transactions until regulators caught on and imposed strict KYC norms. After the regulatory shake-up, it is now viewed and legally treated as any other commodity, like gold or crude oil.

The commodity analogy is reinforced by the name, mining, given to the process that regulates the creation of new Bitcoins and their entry into the economy. But this association is misleading. The actual goal of the process is to validate asset transfer—to check whether the transferor owns the asset and is entitled to transfer it to the transferee as per the conditions under which the transferor acquired the asset. This process is labour-intensive, or rather CPU-intensive, and so the entity, or computer, that carries out the validation is rewarded with a few units of the asset as an incentive. Hence the mining process that generates a reward is actually a by-product of the validation process that is essential for the success of the original book-keeping service that was on offer.

The genius of Satoshi Nakamoto, the name by which the creator of Bitcoin goes (no one is sure who this man is, or is it an entity?), lies in establishing the equivalence between (a) the validation process and the reward process, and (b) the asset under management to the equity of the company itself. He then built the software that does all this and released it into the public domain in 2009 and since then it has been running on multiple computers connected in a peer-to-peer network.

The software running on these machines is controlled by humans but the resultant entity or phenomenon, the network of peer-to-peer nodes is independent of any specific node. Its existence and the validation service that it delivers is an emergent phenomenon that (a) depends on the existence of multiple nodes that adhere to the Bitcoin protocol of data exchange and yet (b) is independent of the existence of any specific node. This is where Bitcoin transcends its earlier identification by being neither a cryptocurrency nor a commodity but becomes instead, a digital autonomous organisation (DAO).

But how does all this really work? The mathematics behind this is rather cumbersome, to say the least, but it has been tested by the best minds in academia and industry and there is complete consensus that this is no scam. As an analogy, consider Einstein’s General Theory of Relativity that has been in the limelight because its spectacular prediction of gravitational waves was recently validated by scientists. None of us really understand the mathematics behind relativity but we are confident that had it been erroneous, the scientists whom we trust would have exposed the flaw. So is the case with the Bitcoin network.

Cryptography, the mathematics behind Bitcoin, ensures that not only is the value of the assets under management preserved but the cost of any effort to subvert or defraud the network is far higher than the asset value that can be obtained through the subversion! Hence there is an economic motive for everyone in the network to make sure that the system continues to operate as designed and that is why the system has been working smoothly since 2009.

In fact, this is true for any society of rational humans where a stability, or rule of law, is ensured when the cost of breaking the law is higher than the benefits that accrue by breaking the law.

If Bitcoin is indeed a digital autonomous corporation, then the corporate office that it works out of is Blockchain. Blockchain is the underlying technology platform and Bitcoin is just one of any number of DAOs that can operate on it. This is similar to the Internet, a hardware platform of networked computers based on the TCP/IP protocol, that supports many applications, of which, only one is the http-based World Wide Web. In fact, if Blockchain is in place, creating a DAO like Bitcoin is not difficult and many alternate DAOs (or alternate coins) exist though none has reached the level of popularity or market capitalization as Bitcoin.





Ethereum has created an open, publicly accessible Blockchain and the Mist browser that makes the creation of DAOs so simple that this author created and deployed indiCoin, a Bitcoin lookalike that is just as robust but a little less sophisticated, in less than 30 minutes (See image).