Corporations are the driving force behind most modern economies, providing employment, goods and services to most citizens.
However, time and time again, the overriding organizing principles and the for-profit nature of businesses have produced negative side effects on the environment, the economy and society at large.
Blockchain technology has opened the door for a new paradigm: the Decentralized Autonomous Corporation (DAC). DACs have the potential to challenge our current economic structures by aligning the interests of operators, shareholders, customers and maybe even the environment.
The State Of For-Profit Corporations
While corporations can be formed for any lawful business or purpose, it is generally understood that the main purpose of a corporation is the creation of profits for its owners. The concept that a company’s primary objective is to increase the wealth of its shareholders by paying dividends or causing stock prices to rise has been widely criticized.
However, the discussion is usually limited to the problem of conflicts of interest between a company’s management and its stockholders; it also focuses on negative externalities of corporate activity such as pollution of the environment.
Profit From Customers And Products
Consumers tolerate having their spending behavior monitored by third parties for the sake of making purchases on credit. Users of social media sites accept being exposed to increasingly targeted advertising so that they may interact with friends and family online. However, these groups of people don’t count as customers of these organizations. From the perspective of these companies, consumers and users are the product that is being sold to lending businesses and advertisers.
Similar misalignment of interests can be observed in many for-profit endeavors. The far-removed values of corporations from the people they purport to serve was recently brought to light through the breach of Equifax’s consumer database and Facebook’s user data overshare to the political consulting firm Cambridge Analytica.
The misused or stolen data was not that of the companies’ clients but the data of general users and consumers. Both companies used unsecured data policies and centralized databases that gave the subjects little knowledge or control over how their information was handled or stored.
Decentralized Autonomous Corporations
Bitcoin not only introduced the concepts of blockchain and cryptocurrency to the internet but also demonstrated to the world that organizational structure can be accomplished through computer code alone. Bitcoin’s blockchain software automatically compensates anyone who records a new block on the chain. As of today, each new block entry is compensated with 12.5 bitcoin — that’s currently worth $91,950 per Google financial data.
While the Bitcoin blockchain software is open-source code maintained by developers volunteering their time, even these volunteers have limited power over the network’s functions and evolution. All changes to the software’s code must be adopted by a supermajority of all software operators in order to be ratified. Today these network members are distributed over 105 countries, maintaining more than 9,600 Bitcoin blockchain nodes. Many of these nodes are comprised of data centers filled with industrial-grade hardware, making a shutdown of the Bitcoin blockchain almost as unlikely as a failure of the internet itself.
In essence, the Bitcoin blockchain created the first Decentralized Autonomous Organization (DAO): an organization that is solely operated by rules encoded as computer programs anchored to the blockchain. The latter function is referred to as smart contract and has since been extended by several other blockchains, including — most notably — Ethereum.
Unlike Bitcoin, which set out to create “digital cash,” Ethereum.org describes the ether currency as “a necessary element — a fuel — for operating the distributed application platform Ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operations. To put it another way, ether is the incentive ensuring that developers write quality applications and that the network remains healthy.” These properties make Ethereum and other blockchains that provide smart contract systems the ideal framework for the creation of decentralized corporations.
One of these centralized markets is access to the internet and the World Wide Web. The entry point to the latter has arguably been monopolized by a single for-profit entity: Google. The reported mission of the company is “to organize the world’s information and make it universally accessible and useful.” Given the for-profit and publicly traded status of its parent company, Alphabet Inc., this motto must also align with the need to increase shareholder value.
While the company’s founders in their initial paper describing their search engine argued that “the goals of the advertising business model do not always correspond to providing quality search to users,” this was indeed the exact business model Google launched two years after its incorporation date. Consequently, the mission of the corporation today can be directly quoted from their quarterly report: “We generate revenues primarily by delivering relevant, cost-effective online advertising.”
While this statement does not identify who would find the delivered online advertising relevant, click-through statistics (paywall) for Google’s AdWords program consistently suggest that most search engine users do not find these messages relevant. The relevance of their online advertising can therefore mostly be seen in Google’s bottom line, which reported a staggering $26.6 billion in advertising revenue in the first quarter of 2018 alone, accounting for more than 85% of the company’s revenues.
As the Google example demonstrates, commercial interests influence and sway development. Consequently, the potential of connected systems and connected knowledge has been underutilized and has halted progress as many internet users seem to have accepted a marketing-driven presentation layer — essentially commercial — as the status quo. Misalignment of interests between shareholders, operators, users and customers – a legacy of the industrial revolution codified in for-profit corporations – has created an environment of broken promises that could be addressed by smart contract systems like DACs, realigning the interest of users, reducing friction and removing middlemen.