“Did you text Bob?” Alice asked, “Maybe something happened; he should be here by now.” It had been a few hours. Most of the protesters had already gone home but a few were waiting for Bob to show up and post bail for James.

Finally a call from Bob’s spouse. There was an accident. Bob is OK but he has a few broken ribs and is currently being monitored in the hospital for headaches. It seems like James will need to spend a night or two in jail until things can be sorted out.

The Way Nonprofits Hold Funds

Perhaps it would have been better if the group had formed a nonprofit with a group checking account. If two or three officers were authorized to sign checks on behalf of the nonprofit then someone could have still posted bail for James while Bob was in the hospital.

Here is why this doesn’t make any sense:

Typically, IRS 501(c)3 approval takes between 2 and 12 months Applying for 501(c)3 nonprofit status is a serious undertaking which requires the submission of several forms and can initially cost a few thousand dollars. The organization needs to maintain proper accounting standards. They may need to consult with a lawyer to see if the activities of the group impose any legal liability. If the group is actually underwriting any type of risk, they may need an insurance license. For example, the members contributing into a bail fund with the group’s implicit or explicit promise that funds will be used for the express purpose of posting bail for the members. The group may need to create a web portal so that the members can:

* Make payments

* See their contribution

* See the status of the group They may need to integrate with an online payment provider such as stripe or similar.

The costs involved with incorporating these types of groups is several thousands of dollars, and they could potentially exceeds tens of thousands of dollars. What will the group do with the funds? If members are paying contributions with the guarantee that the group will provide indemnity for future risks then they need an insurance license. Before the group can begin to pool its funds, it must wait several months before it is granted status as a nonprofit.

The costs associated with regulatory compliance are substantial in both time and money.

No small groups can afford these huge up-front costs. This may mean that collective action by small groups is extremely limited because groups are required to entrust their funds to a single member. The result is that small groups are effectively denied access to the power of collectively pooling funds. Undeniably, that has prevented small groups from entering into collective agreements. Agreements that could empower the group to provide each other specialized types of mutual insurance coverage.

Innovative Breakthroughs in Technology

Innovative Breakthroughs in Communications

We have seen how technology has provided groups new ways to organize and communicate. Here are just a few examples:

The Arab Spring enabled by apps such as Facebook

enabled by apps such as Facebook The #metoo movement enabled by apps like Twitter

movement enabled by apps like Twitter 2014 Hong Kong protests enabled by decentralized apps like FireChat

Breakthroughs in technology have provided groups with new ways to share their ideas and coordinate their actions. If groups want to organize without pooling their financial resources, the technology we already have is sufficient for them to do so. If groups want to take collective action by pooling their money, how can they do it cheaply and efficiently? To lay the groundwork for joint custody of digital funds, financial technology has enabled innovations in payments and in crowdfunding.

Innovative Breakthroughs in Payments

The following excerpts from the Rubin Report’s interview of Peter Thiel show how Paypal used technology to revolutionize the world of payments:

Thiel (31:54): The big picture with PayPal was to revolutionize money and payments.

Rubin (5:00): What did you do … to [make people] understand that you could work with money differently? How did you train people to realize this is something that’s real?

This is where Peter points out that Paypal’s roots were grounded in the need for auctions such as Ebay to enable buyers to pay sellers via credit cards. Without credit cards, the only option was for users to transact via check. The payment friction of having to use checks resulted in delays in excess of one week.

Thiel (5:51): A natural place to start was on the eBay auction site where [there was a need to send] small dollar transactions. Maybe $40 was the typical amount. And if you send check across the country, that’s like a 7 to 10 day delay. This delay was because most people couldn’t process credit cards but you could make PayPal payments with a credit card.

Thiel (6:27): There was a 150 million people with emails in the US at the time, but there were maybe three million small businesses that were set up to process credit cards so we expanded the ability to process credit cards by 147 million.

Thiel (9:18): We had the sense that we were going to change the world and we were going to give people more control over their money. We had all these ideas about getting rid of central banks and creating a new currency. We never quite got to the Bitcoin stage of [development] but certainly these ideas were incredibly motivational in [creating PayPal].

Thiel (9:41): the PayPal hack was a way where we were going to change the world and we were not going to ask for permission. [it would just be] technology over politics.

Without Paypal providing a way for users to send money, Ebay was a very different experience.

Innovative Breakthroughs in Crowdfunding

On the back of Paypal came innovations such as P2P lending and fundraising. Paypal had blazed a path that allowed money to flow more easily between people on the internet. Initially, people were given greater ability to purchase things on Ebay. By 2008, P2P payments enabled people to crowdfund projects on sites such as Kickstarter. By 2010, P2P payments enabled people to crowdfund causes on sites such as GoFundMe.

Sites like GoFundMe automate away the burdensome bureaucratic process that was previously required for causes to raise funds. GoFundMe provides an umbrella framework for multiple communities to use them as a vehicle for nonprofit fundraising. This allows communities to raise funds with greater efficiency and lower costs.

Decentralized payments provided a path for groups to realize decentralized fundraising. We already have decentralized transport (Uber, Lyft), decentralized hospitality (Airbnb), and various examples of decentralized delivery. Why don’t we have a technology that could automate the creation of nonprofit entities? What is holding us back from using decentralization to bypass bureaucratic restrictions that prevent groups from pooling funds? Why can’t individuals use an app which allows them to form groups which then provide mutual insurance coverage?

Innovative Breakthroughs in Escrows?

The Internet and decentralized technology has provided us with the following categories of innovations:

Communications enabling users to organize

enabling users to organize Payments enabling users to send money

enabling users to send money Lending enabling users to raise money and fund causes

It has yet to give us a way to enable groups to hold money. One of the most obvious use cases of such a technology would be mutual insurance cooperatives. TandaPay’s architecture enables this type of innovative breakthrough.

Without TandaPay allowing groups to hold money, organizing movements is a very different experience.

The next post will review exactly how TandaPay’s architecture enables this type of breakthrough. It will discuss the benefits and challenges of using decentralized technology to allow groups to take joint custody of funds.