by Don Tapscott
The blockchain allows any entity to become a weather provider or weather data consumer, with very low barriers to entry. Just buy a weatherNode, put it on your roof, and connect it to the GlobalWeatherDataMarketplace DApp LP (for linked peers) and you’ll start earning income right away. And if you can rig your own rooftop weatherNode that happens to provide more accurate data, well, good for you! You innovated on the edge, and the market rewards you for it. The incentives for innovation on open networks are aligned to increase efficiency better than closed networks.
Dueling Bots
What about conflicts of interest? If the weatherNode started expanding its capability and entered the crop insurance marketplace, wouldn’t it have cognitive dissonance? Farmer weatherNodes want to emphasize the impact of droughts, and insurer weatherNodes claim droughts are minimal. The owners and designers of agents need transparency of operations. If both are filtering sensor data through a biased screen, then their respective reputations will drop.
Vitalik Buterin points out that autonomous agents are challenging to create, because to survive and succeed they need to be able to navigate in a complicated, rapidly changing, or even hostile environment. “If a Web hosting provider wants to be unscrupulous, they might specifically locate all instances of the service, and then replace them with nodes that cheat in some fashion; an autonomous agent must be able to detect such cheating and remove or at least neutralize cheating nodes from the system.”14
Note that autonomous agents also separate personhood from asset ownership and control. Before blockchain technology, all assets—land, intellectual property, money—required a person or legal organization of people to own it. According to Andreas Antonopoulos, cryptocurrencies completely ignore personhood. “A wallet could be controlled by a piece of software that has no ownership and so you have the possibility of completely autonomous software agents that control their own money.”15
An autonomous agent could pay for its own Web hosting and use evolutionary algorithms to spread copies of itself by making small changes and then allowing those copies to survive. Each copy could contain new content that it discovers or even crowdsources somewhere on the Internet. As some of these copies become very successful, the agent could sell ads back to users, ad revenue could go into a bank account or posted on a secure place on the blockchain, and the agent could use this growing revenue to crowdsource more ad content and proliferate itself. The agent would repeat the cycle so that appealing content propagates and hosts itself successfully, and unsuccessful content basically dies because it runs out of money to host itself.
DISTRIBUTED AUTONOMOUS ENTERPRISES
We now suggest you buckle up in your Star Trek captain’s seat for a moment. Imagine BOB 9000—a set of autonomous agents that cooperate in a complex blockchain-based ecosystem according to a mission statement and rules. Together they create a suite of services that they sell to humans or organizations. Humans animate the agents, endowing them with computing power and capital to go about their work. They buy the services they need, hire people or robots, acquire partner resources such as manufacturing capability and branding and marketing expertise, and adapt in real time.
This organization could have shareholders, possibly millions of them who participated in a crowdfunding campaign. The shareholders provide a mission statement, say, to maximize profit lawfully, while treating all stakeholders with integrity. Shareholders could also vote as required to govern the entity. As opposed to traditional organizations, where humans make all decisions, in the ultimate distributed organization much of the day-to-day decision making can be programmed into clever code. In theory, at least, these entities can run with minimal or no traditional management structure, as everything and everyone works according to specific rules and procedures coded in smart contracts. There would be no overcompensated CEO, management, or corporate bureaucracy, unless the entity decided to hire and build one. There would be no office politics, no red tape, no Peter Principle of the Dilbertian enterprise at work, because technology providers, open source communities, or enterprise founders would set the software’s agenda to execute specific functions.
Any human employees or partner organizations would perform under smart contracts. When they do the job as specified, they are instantly paid—perhaps not biweekly but daily, hourly, or in microseconds. As the entity wouldn’t necessarily have an anthropomorphic body, employees might not even know that algorithms are managing them. But they would know the rules and norms for good behavior. Given that the smart contract could encode the collective knowledge of management science and that their assignments and performance metrics would be transparent, people could love to work.
Customers would provide feedback that the enterprise would apply dispassionately and instantly to correct course. Shareholders would receive dividends, perhaps frequently, as real-time accounting would obviate the need for year-end reports. The organization would perform all these activities under the guidance and incorruptible business rules that are as transparent as the open source software that its founders used to set it in motion.
Welcome to tomorrow’s distributed autonomous enterprise (DAE), powered by blockchain technology and cryptocurrencies, where autonomous agents can self-aggregate into radically new models of the enterprise.
Before you say that this all sounds impractical, pointless, or something from sci-fi, consider the following. Using tokens, companies such as ConsenSys have already issued shares in their firms, staging public offerings without regulatory oversight. You could legally record the ownership of privately held corporations and transfer those shares to other persons on the blockchain. Your share certificates can pay dividends and confer voting power. That said, your new “blockcom” is distributed; it doesn’t exist without jurisdiction, but your shareholders can live anywhere. Imagine a similar mechanism to issue debt in the form of bonds, either private corporate bonds or sovereign bonds, essentially creating a bond market. The same logic applies to commodities—not the commodity itself but a note that corresponds to the commodity, similar to how the Chicago Mercantile Exchange or the global gold market work.
But don’t think of securities as you currently know them. Imagine a global IPO with 100 million shareholders each contributing a few pennies. It’s not unthinkable that management and governance could occur on a massive scale, with millions of people having voting shares. At last, investors at the bottom of the pyramid could participate and own shares of a wealth-creating venture anywhere in the world. In theory at least, we could design a corporation without executives, only shareholders, money, and software. Code and algorithms could replace a layer of representatives (i.e., the executive board), with shareholders exerting control over that code. The opportunity for prosperity is significant, nothing less than the democratization of ownership of wealth-creating instruments.
Not practical? Perhaps. But consider that entrepreneurs are already using scripting languages such as Ethereum to design such functions for eventually autonomous models. Already innovators are implementing code that permits multisignature control over funds. Through crowdfunding campaigns, masses of people are purchasing equity in companies. DApps are already giving way to autonomous agents.
This completely distributed enterprise could have a wallet that requires thousands of signatories to achieve consensus in order to spend money on an important transaction. Any shareholder could suggest a recipient for that money, marshaling consensus around that transaction. A structure like this would have obvious challenges. For example, mechanisms would need to be in place to quickly achieve consensus. Or who is responsible for the outcome of that transaction? If you’ve contributed one ten-thousandth of a vote, what is your legal responsibility and liability? Could there be self-propagating criminal or terrorist organizations? Andreas Antonopoulos is not concerned. He believes that the network will manage such dangers. “Make this technology available to seven and a half billion people, 7.499 billion of those will use it for good and that good can deliver
enormous benefit to society.”16
THE BIG SEVEN: OPEN NETWORKED ENTERPRISE BUSINESS MODELS
There are countless opportunities to construct open networked enterprises that disrupt or displace traditional centralized models, potentially evolving into nascent distributed autonomous enterprises. Consider how the distributed model will disrupt or replace the eight functions of financial services—everything from retail banking and stock markets to insurance companies and accountancies. Incumbent and new entries alike can construct new business architectures that can innovate better, create better value at lower cost, and shift and enable producers to share in the wealth they create.
Blockchain technology takes some of the new business models described in Wikinomics to a new level.17 Let’s look at how we can expand peer production, ideagoras, prosumers, open platforms, the new power of the commons, the global plant floor, and the wiki (social) workplace by adding in native payment systems, reputation systems, uncensorable content, trustless transactions, smart contracts, and autonomous agents—the key innovations of the blockchain revolution.
1. The Peer Producers
Peer producers are the thousands of dispersed volunteers who brought you open source software and Wikipedia, innovative projects that outperform those of the largest and best-financed enterprises. Community members participate for the fun of it, as a hobby, to network, or because of their values. Now, by enabling reputation systems and other incentives, blockchain technology can improve their efficiency and reward them for the value they create.
Peer production communities can be “commons-based peer production,” a phrase coined by Harvard Law professor Yochai Benkler.18 Sometimes called social production, also Benkler’s term, this system means that goods and services are produced outside the bounds of the private sector and are not “owned” by a corporation or individual. Among the countless examples are the Linux operating system (owned by no one but now the most important operating system in the world), Wikipedia (owned by the Wikimedia Foundation), and the Firefox Web browser (owned by the Mozilla Foundation). Peer production can also refer to activities in the private sector where peers collaborate socially to produce something but the good is not socially owned.
Peer production as a business model matters for two reasons. First, sometimes peers collaborate voluntarily to produce goods and services where a corporation acts as curator and achieves commercial benefit. Readers create the content on the Reddit discussion platform, but they don’t own it. Reddit is the tenth-biggest site in the United States in terms of traffic. Second, companies can tap into vast pools of external labor. IBM embraced Linux and donated hundreds of millions of dollars’ worth of software to the Linux community. In doing so, IBM saved $900 million a year developing its own proprietary systems and created a platform on which it built a multibillion-dollar software and services business.
Experience shows that long-term sustainability of volunteer communities can be challenging. In fact, some of the more successful communities have found ways to compensate members for their hard work. As Steve Wozniak said to Stewart Brand, “Information should be free, but your time should not.”19
In the case of Linux, most of the participants get paid by companies like IBM or Google to ensure that Linux meets their strategic needs. Linux is still an example of social production. Benkler told us, “The fact that some developers are paid by third parties to participate does not change the governance model of Linux, or the fact that it is socially developed.” This is more than so-called open innovation that involves cooperation between firms and sharing certain intellectual property, he said. “There is still substantial social motivation for many contributors and as such it’s a hybrid model.”20
Further, many of these communities are plagued with bad behavior, incompetence, saboteurs, and trolls—people who sow discord by posting inflammatory, incorrect, or off-topic messages to disrupt the community. Reputation in these communities is typically very informal, and there is no economic incentive for good behavior.
With blockchain technology peers can develop more formal reputations for effective contributions to the community. To discourage bad behavior, members could ante up a small amount of money that either increases or decreases based on contribution. In corporate-owned communities, peers could share in the value they create and receive payment for their contributions as smart contracts drop transaction costs and open up the walls of the firm.
Consider Reddit. The community has revolted over centralized control but still suffers from flippant, abrasive members. Reddit could benefit from moving to a more distributed model that rewards great contributors. ConsenSys is already working on a blockchain alternative to Reddit that does just that. By offering financial incentives, the ConsenSys team thinks it can improve the quality of Redditlike conversations, without centralized control and censorship. The Ethereum platform provides incentives, perhaps in real time, to produce high-quality content and behave civilly while contributing to collective understanding.
Reddit has a system in place, called Reddit “Gold”—a token that users can buy and then use to reward people whose contributions they value. The money from tokens goes to site maintenance. The gold has no intrinsic value to users. So with a real, transferable, blockchain-based coin incentive, Reddit members could actually begin to get paid for making the site more robust.
Wikipedia, the flagship of social production, could benefit as well. Right now all persons who edit articles develop an informal reputation based on how many pieces they have edited and how effective they are, as measured by highly subjective terms. The Wikipedia community debates constantly over incentive systems, but administering some kind of financial compensation to seventy thousand volunteers hasn’t been feasible.
What if Wikipedia went on the blockchain—call it Blockapedia. In addition to the benefits of entries time-stamped into an immutable ledger, there could be more formal measures of one’s reputation that could help incent good behavior and accurate contributions. Sponsors could fund, or all editors could contribute money to, an escrow account. Each editor could have a reputation linked to the value of her account. If she tried to corrupt an article, stating for example that the Holocaust never happened, the value of her deposit would decline, and in cases of defamation or invasion of privacy, she would lose it and even face civil or criminal action. The true events of the Second World War could be established in many ways, for example, by accessing unchangeable facts on the blockchain or through algorithms that show consensus regarding the truth.
The size of your Blockapedia security deposit could be proportional to your previous reputation on Wikipedia or similar platforms. If you’re a brand-new user and have no reputation, you’ll put up a larger security deposit to participate. If you’ve edited, say, two hundred articles on Wikipedia successfully, your deposit might be small.
This is not necessarily about moving Wikipedia to a for-hire compensation model. “It’s simply a case of providing real-world economic gain or loss depending on the accuracy and veracity of the information you’re providing,”21 said Dino Mark Angaritis, CEO of the blockchain-based Smartwallet. Defacing Blockapedia hurts your formal reputation but you also lose money.
But Wikipedia works pretty well right now, right? Not quite. Andrew Lih, writing in The New York Times, pointed out that, in 2005, there were months when more than sixty editors were made administrator, a position with special privileges in editing the English-language edition. In 2015, the site has struggled to promote even one editor per month. Being a voluntary global organization, there are internal tensions. Worse, editing content on a mobile device is difficult. “The pool of potential Wikipedia editors could dry up as the number of mobile users keeps growing.” Lih concludes that the demise of Wikipedia would be unfortunate. “No effort in history has gotten so much information at so little cost into the hands of so many—a feat made all the more remarkable by the absence of profit and owners. In an age of Internet giants, this most selfless of we
bsites is worth saving.”22
Overall, peer production communities are at the heart of new, networked models of value creation. In most industries, innovation increasingly depends on dense networks of public and private participants and large pools of talent and intellectual property that routinely combine to create end products. As IBM embraced Linux, firms can even tie into self-organizing networks of value creators like the open source movement to cocreate or peer-produce value.
2. The Rights Creators
During the first generation of the Internet, many creators of intellectual property did not receive proper compensation for it. Musicians, playwrights, journalists, photographers, artists, fashion designers, scientists, architects, and engineers all were beholden to record labels, publishers, galleries, film studios, universities, and large corporations that insisted these inventors assign their intellectual property rights to what essentially are large rights management operations in exchange for less and less of their IP’s value.
Blockchain technology provides a new platform for creators of intellectual property to get value for it. Consider the digital registry of artwork, including the certificates of authenticity, condition, and ownership. A new start-up, Ascribe, enables artists themselves to upload digital art, watermark it as the definitive version, and transfer it so that, like bitcoin, it moves from one person’s collection to another’s. That’s huge. The technology solves the intellectual property world’s equivalent of the double-spend problem better than existing digital rights management systems, and artists could decide whether, when, and where they wanted to deploy it.