Anyone who knows me knows I’ve been a big bitcoin fan for a number of years (a fan of shorting it for a good while too apparently – here, here, and here…oh, long here). Even being someone with money on the line, I have a tough time wrapping my head around cryptocurrency and its lifeblood, the blockchain.
Enter Digital Autonomous Organizations (DAO), smart contracts, and crowdfunded equity, and it suddenly get even more ridiculously complex. If you’re looking for an explanation on any those things you’ve come to the wrong place, my friend. Google that, yo. Damn.
I’m here today to talk about “THE DAO” (stay with me), the world’s first DAO (I think – does Digix count?).
While we were sleeping, the 1st DAO launched to begin the 4th indust. rev. and disrupt business forever. Power to the peeps. @stephantual
— My Crypto News (@right_on_bruh) April 30, 2016
Required reading, seriously – don’t bother without it:
In it’s first few days, THE DAO has raised over US$19MM with 22 days to go. If you’re just catching up, this is a stateless blockchain entity with no business, no revenue, and no plans. It’s backed by Ethereum, an even smaller cryptocurrency than Bitcoin.
The Dow is dead – long live the DAO
What I’m here to tell you today is that I think we are about to witness one of the largest disruptions of our generation. Bitcoin was game changing and brought about the blockchain. The blockchain brought smart contracts and an entire galaxy of stunning applications. DAO’s paired with crypto and the blockchain are going to change everything.
Money flows to efficiency. Simple. Always has been always will be. Humans tend to not be as efficient as computers, duh. Who are you going to trust to execute a contract, a human, or a computer built with that sole intention? That’s smart contracts… and I believe they are the most efficient innovation in commerce that we have likely ever seen.
Let me tell you why, and remember, I know about as much of this as you do so I could be off here or there on something.
Traditional corporate and financial business relies on trust. Trust of a vendor. Trust of a third party to exchange value. Trust of your staff to do the job right. Blockchain and smart contracts are trustless.
TRUSTLESS. There is no element of trust whatsoever. You build a computer to execute a contract. That computer can manage escrow, check in on milestones and distribute funds, return funds for failed contracts, and on and on and on. The applications are limitless. It’s whatever you write it to do. And there’s a plain English version for people like us. Most importantly, smart contracts execute as intended… every time… forever. You can not beat that. It’s scary to think how we could outsmart ourselves and be at the mercy of these DAO’s.
Maybe I’m just a fanboy, but I think it would almost be naive to think these aren’t going to find their way into business and hence our everyday lives in the very near future in a very big way. It’s too groundbreaking and too valuable for it not to. We have the capability, it’s just confidence in these unheard of, unprecedented systems.
It’s ironic though because again, confidence is about trust and these are designed to be trustless. It’s a lack of understanding, not a lack of technology, not a lack of readiness. We’re sitting here staring the future in the face.
It’s the new wild west. A gold rush of unprecedented proportions. Everything old is new again. How can it not be when the only thing in the way of this incredible innovation is a problem that exists because we’re too stupid to understand the genius of what we’ve made. It’s really quite shocking because it all falls in completely decentralized systems independent of any government or politics. I don’t know how you could control any of these short of shutting down the internet, and I’m not even convinced that would do it.
So, what to do…
If you’re still here, congrats, you’re qualified to sit at the roundtable for some ideas I want to chat about now that you have an idea what’s going on.
First, I think it’s important to get something moving on this straight away. Everything we need is available and opensource as far as I know. There’s big hype right now and there’s probably going to be a chain reaction of DAO style IPO’s, so to speak. I think first mover is going to be pretty important with how dynamic these things are but hey, what do I know.
Next, I want to experiment with something that’s low risk, community based, and good for humanity. Let’s build a bloody hero of a damn robot. I think I have a really great idea for something worth trying.
You may be familiar with microloans, which is kind of like crowdfunding that you pay back. Kiva is a pioneer in this space and lends small money to entrepreneurs in mostly developing countries. The cool thing about Kiva is that they don’t require credit checks, they require 25 personal references as a core criteria of loan approval.
Anyways. Kiva is great and I’m even working with them for a current project. I’ve long thought however it’s high time there was a for profit investment fund for microloans. Microloans at Kiva default at a rate of less than 2%. That ranks among or better than the safest fixed income in the world – and there is a good sample size on that data now too. With their managed lending program, they can get the default rate to virtually 0. This is incredible. No debt in the world pays back at that rate.
For-profit P2P microlending DAO?
I believe though as morally pure and fantastic as Kiva truly is (and they were the pioneers), it is limited by the fact it is not run for profit. Loans are not subject to any interest. There is no return, no accrued or compounding capital base, no business incentive that could otherwise attract a lot of dormant money starved for return with a humanitarian benefit.
What would happen if you created this for profit microloan investment fund via a DAO, the blockchain, and all the amazing toys that come with it? Even if you charged microinterest, if you were successful at any sort of fundraising, the computer would basically have X number of dollars to go out and make loans to people in need for the rest of time.
Though run for profit, this is just to expand the potential impact of the organization. You could build an irreversible charter that kept it capitalistic while entirely humanitarian. It would not be capable of being malicious. Not capable. Trustless, remember? Big hero robot for real. What if it just went on like that forever with its own agenda?
If loans pay back at near 100% and the interest covers the losses and rewards expanding the capital base, in theory this thing would just exponentially increase forever (wait, is this the holy grail? What if it has all the money?). Consider that it is run for profit and can pay for things like talent and marketing for ongoing fundraising. Similiar to a mutual fund for example. I think that takes you a lot further all others things equal than a nonprofit model.
The risk of this idea is next to nothing. The potential is an ability to flush out a ton of money that would otherwise love to help people but expects at least a small return, or has trust issues, LOL. I think there would be tremendous grassroots community support and even publicity for a project like this. Is a government going to shut down a DAO making ridiculous money, not paying taxes, and doing nothing but fight poverty?
Let’s do this thing.
Blockchain is already done and confirmed in my mind. DAO and smart contracts are going to be next. Want to make a DAO? Let’s connect.
The DAO smashed the number one crowdfunding of all time, raising US$150MM as of May 21, 2016.
On June 17, 2016, about US$50MM was hacked from The Dao using a combination of vulnerabilities.
Follow Up Post:
Square Peg Meet Round Hole
The DAO hack resulted in an Ethereum chain spilt on July 20, 2016. Part of the community wanted to return hacked funds with the other camp in favour of blockchain immutability.