Oct 212013
 

Dawn of Autonomous Corporations Bitcoin

Still waiting for Bitcoin to be accepted at Amazon and eBay? Forget it. Bitcoin will power the next generation of corporations and the only way to deal with those corporations will be through Bitcoin (that’s right, they won’t, or rather can’t, accept fiat like US Dollar). These ideas may seem futuristic, but they are not more than 5 years away, maybe 10.

Autonomous Corporations

That’s right, autonomous corporations will be a new breed of corporations that act and behave, for all practical purposes, just like regular corporations. However, no one ‘owns’ them. Not the creator, not the customers, not the governments, no one really. Sound familiar?

Bitcoin can be thought of as the first real autonomous ‘corporation’ although you probably don’t see it that way. Think about it – it provides a payment protocol and employs miners to maintain that protocol. The employs are rewarded with ‘stock’ that is split at most into 21 million units. You don’t have to think of Bitcoin this way to get to autonomous corporations, though it will help.

The idea is the same – this corporation has revenues, expenditures and profits. However, once again, no one owns this entity, it owns itself. The reason it exists is to provide a service at an extremely competitive price that no human-based corporation can provide, so they’ll work higher up the chain to provide ‘value-added’ services.

How Does this Work?

  • The corporation is completely decentralized, so no one can really shut it down. It lives in the cloud. It finds the cheapest and most reliable servers and lives there. This is also the biggest source of the corporation’s expenditure.
  • Revenues come from people using the service. For instance, if it is a file-sharing service, like StorJ, revenues could be anything that regular file-sharing services have – paid hosting, advertising, etc.
  • People will make all attempts to rob this poor corporation of its money. This means it needs to keep the private key really private and decentralized. This also means major code changes, written by humans, will need to be tested on a child first.
  • It also needs to establish a protocol for communication (HTTP might not cut it in a decentralized network) through which people will interact with the corporation.

This kind of corporation isn’t restricted to live online. If the hardware exists (which might take time), you could have, say, self-driving cars owned by this corporation. These are being worked on right now, and the first ones shouldn’t be that far away into the future. See also Vitalik’s series on decentralized autonomous corporations.

Bitcoin makes this possible, for the first time ever, because it provides a payment protocol that is independent of an entity and since this autonomous corporation cannot deal with banks (for all practical reasons), Bitcoin solves the major missing piece of the equation – payments. Bitcoin makes it possible to program a corporation to accept payments and make payments without having to deal with any intermediaries that cannot be trusted. If you want to deal with such a corporation, you better have Bitcoin or any other potential decentralized crypto-currency.

The last pieces of centralization are removed with a system like Namecoin that is decentralized DNS system that the autonomous corporation uses as its website/front where it interacts with people. There will ideally be a decentralized identity system, like the Keyhotee system. Communication can take place through something like Bitmessage or through the Keyhotee mailing system that is decentralized. The autonomous corporation cannot afford a central point of failure for essential functions.

Value of Bitcoin

This is just one example where a protocol like Bitcoin can completely revolutionize the world we live in. Lets look at the big picture. Who cares if eBay accepts Bitcoin? The real value of Bitcoin lies in economies that don’t yet exist. Now that Bitcoin has reached another high since the last run-up, there will be several calls of a bubble. Lets not forget the real strengths of Bitcoin in the day to day price fluctuations. These don’t measure the value of Bitcoin and what it can be. And all people seem to care about is drawing parallels to tulips!

Also see Dawn of Autonomous Corporations Part-2.

Photo Credit: Jarod

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  47 Responses to “Dawn of Autonomous Corporations, Powered by Bitcoin”

  1. Excellent article, Sid! You drew some pretty interesting parallels! “The real value of Bitcoin lies in economies that don’t yet exist…” I agree with this statement, and I also find the tulip comparison just as irritating as you seem to find it.

    Bitcoin is something that writes its own rules. It is disruptive technology at its finest: an idea that originated from an unknown person five years ago is now used around the world, has more market capitulation than some “real world” currencies, and seems poised to only grow in value. We’re living in a new world, and a decentralized money system is something this world needs. It wrests control of the money supply out of the hands of corporations and governments.

    • Thanks for your kind words Rob! Bitcoin is growing on the backs of entrepreneurs like you, who see not just what Bitcoin is but it can be. Also, since you run an amazing hosting service using Bitcoins, perhaps the first autonomous corporations should plug into your system!

  2. I have a couple of questions:

    How does an autonomous corporation find the cheapest and most reliable servers, and migrate its code, database, update dns, etc. Also, what if it finds a better deal?

    If its truly autonomous, why does it need to have humans write major code changes?

    Why can’t an autonomous corporation deal with banks? Surely it should be able to govern its own affairs.

    Bitcoins have real value today, they are equated to dollars, and to say that their “real value lies in economies that don’t exist yet” is a pretty vague statement.

    • 1. Mostly through a bidding system that is accessed through public APIs. Depending on the technologies and risks involved, instead of migrating itself, it can spawn off children on another host, gauge the performance, and then follow in the child’s footstep if the child survives.

      2. It doesn’t ‘need’ humans to write code, it ‘employs’ humans to enter new markets. Again, it does this through the children because the human might just try to rob the corporation with deliberately written code for this purpose. It is autonomous, not a skynet system (yet).

      3. There is absolutely no way that an autonomous corporation can deal with banks in their current form. There is no owner, no one to sue, no one to litigate against. Besides, banks can very easily seize the assets of this corporation. Remember there are no owners and no names. How do you think such an entity can ever get a bank account in the first place? Remember there is no recourse to the legal system – if things go bad, the corporation just dies. It cannot sue.

      • “There is no owner, no one to sue, no one to litigate against.”
        so why…would anyone do business with this autonomous business?
        what good is a business that no one want’s to work for?

        • Either because:

          1) It publicly provides services that no physical entity would be willing to (possibly due to cost, danger, or illegality; think a company that offers video streaming through the firewall for Chinese residents. Or better yet, one that rescues people kidnapped by the worst mobsters/gangsters/terrorists on the planet–with no physical body to go after, the crooks would have no one to shoot at.)

          or

          2) It publicly provides services with benefits that no physical entity can offer (lower costs, computerized speed, mathematically-provable objectivity and fairness, invulnerability to regulatory interference, etc.)

          • i don’t mean consumers…i mean employees or subsidiaries.

            for instance: i am a programmer, this autonomous corporation is offering to pay me to program it’s kids, but it will not be handling my taxes, it will not be providing health care or other services, and if it refuses to pay me i have no legal recourse to extract payment for services rendered.

            just as no banks would want to work with this corporation, no employees or contractors would want to work with them and for the exact same reason: no one to sue means no way to extract payment for services rendered no way to get reparations for wrongs the corporation may commit.

          • Again I see two possibilities. Either,

            1) the “system” (“corporation” or even “organization” doesn’t really seem to fit after giving it thought) has an ongoing track record of reliability, started out by whoever created the system and growing from there. Anyone deciding whether to sell/buy something to/from the system would factor the track record into their decision to interact with it, and those choosing to engage in a long-term relationship could end it at any moment.

            or

            2) the system, rather than being composed of dark code that hides itself away in corners of the internet, would actually be an open-source program that anyone could choose to be a part of. Once the potential seller/contractor/employer has verified that the offer is a legitimate one from the system, they will then be able to see for themselves, in exact detail, exactly how the software will respond to their actions.

            I would think the most successful such systems would actually be able to engage in profitable trade through a combination of (1) and (2).

        • It is open source, so its behavior is verifiable. In this sense, it is actually more trustworthy than a person.

  3. Curious as to why you used the Skytower in Auckland, New Zealand for the graphic?

    • That’s a very good question ..
      I liked to shot of the tower … looks like it’s reaching out into space and time!

  4. How about a legal framework? Could a company operate outside of being registered/incorporated in some place?

    • It brings us back to the legal framework under which Bitcoin operates … none. Decentralized systems, by design, cannot operate under one legal framework. If an autonomous corporation exists, it will, for better or for worse, have to exist outside the legal framework. Remember that it operates on its own without any interference from anyone, which means there are no owners to ensure compliance. It just exists.

  5. If an Artificial Intelligence takes up immortal residence at the center of such an autonomous corporation, it will be unstoppable on its way to World Domination and Technological Singularity.

  6. You are 100% on target with this article. I have been saying this for months, although I haven’t called it autonomous corporations. It will be the next big thing.

    Curious if you read this somewhere, or if we both happen to be thinking the same way.

    • Bob, that’s great! I just used the phrase ‘autonomous corporation’ because that’s what Jeff Garzik uses in his post about StorJ. There has been discussion about this in the community before, so I’d be lying if I said I came up with this independently. I am very interested in exploring these ideas though. I recommend Mike Hearn’s video that I linked to from the post for a nice and quick introduction although I suspect you’ve crossed the beginner stage!

      Have you written your thoughts about this somewhere? Would love to read them.

  7. The employs are rewarded with ‘stock’ that is split at most into 21 million units.
    No biggie, but that is factually wrong. One bitcoin can currently be divided to the eight decimal, so the current maximum theoretical number of bitcoin units is 2,100,000,000,000,000 – not 21,000,000.

    • Given that a “unit” is “one” (and not .00000001), I think that the author’s point is valid. Your comment, that you could actually have a fraction of a unit has merit, but is not worth getting bunched undies over.

    • Yeah exactly I mean a unit as ‘one’, doesn’t matter how many parts a unit can be split into. In fact, Satoshi himself mentioned that if the value really rises, we could always change the precision of 8 decimal places, so the divisibility might actually change over time. What would remain constant though is the fact that at most 21 million Bitcoins will be in existence.

  8. I’ve been thinking about something similar for a little while also. Large scale projects that would require extremely deep and long-term investments could be acheivable through the use of a decentralized system of both management and stake in the effort. For example, an effort to build a space station to serve as a hotel 10 years in the future could make purchases through selling stock, or pay employees in stock or a chance to visit for free in the future. Decisions could be mostly automated, or by relatively anonymous voting via a proof-of-stake network structure. Payments in bitcoin and/or shares would improve the ability for the corporation to operate flexible. The hype alone could bring in substantial funding and support, in a way similar to crowdfunding, but big enough to build spaceships.

  9. Technically and legally speaking, the corporation is the daughter of the state and so not autonomous.

    Better choice of words would be *entity*.

  10. Shades of Stross’s Accelerando

  11. another work of genius inspired by bitcoin. To cut to the chase, you have no idea what you are talking about, but a great deal of rhetoric, and all your “thought” is devoted to bitcoin, not “corporations.”

    Let’s be specific. In the US, a “corporation” is a legal entity that must be registered with a number of licenses and regulatory structures. In order to do that, it must have owners. Its owners, by the way, are distributed, including shareholders of various sorts with different investment stakes. Did you research any of this? Why would someone be “part of” a corporation if they had no ownership stake, meaning they had no legal right to the profits of the corporation?

    So something might happen in the way you are describing, but it would not be a “corporation.” I don’t know what it would be, but I suspect it is so amorphous that it already exists in any number of ways.

    Corporations in the US are practically autonomous already, and are playing a huge part in destroying much of what’s left of the world. Luckily you have no clue what you are talking about, because the idea of giving them more power and making them even less accountable is one of the scarier things I’ve heard.

    • Agree – such an entity would not be a “corporation” as legally defined today. However, a little semantic sloppiness is not reason to dismiss an intriguing idea with “you have no idea what you are talking about”.

      And, even today with multinational companies, shell companies and a host of other legal tricks many, many companies are “faceless”. This just stretches it a little farther to be “bodiless” as well.

  12. Patrick, I like the way you think. My view is that bitcoin-fueled business activity will be comprised of individuals, not corporations. Individuals working on shared projects will control bits and pieces of the mechanics (e.g., an important bitcoin wallet, or a code repo) and will choose in many instances not to avail themselves of the corporate form *at all*. People who are concerned about vicarious liability for shared activities will protect themselves through anonymity, obscurity, and through insurance, rather than relying on a court to respect the corporate veil. Not to say that business entities with limited legal liability will go away — rather, they will have a diminished place within the ecosystem.

  13. I cant see how this autonomous corporation could at all be possible. I’ve seen this same argument as above (and it also refers to bitcoin) echoed in a youtube video presentation by bitcoin developer Mike Hearn, which you should all search for since the comments don’t let me post the link.

    And in both cases I see a basic flaw being the case. Basically, without the existence of genuinely autonomous AI (a conscious or at least extremely autonomous heuristic machine intelligence) There is no way any such organization or company could spontaneously organize itself in an effective way. Furthermore, if it were profitable, a human would simply operate it for his own benefit, thus negating the idea of true autonomy.

    Furthermore, Bitcoin obviously doesn’t fit this profile at all. While the system itself is completely decentralized and autonomous from a central controlling actor (such as would be the case with a corporation run by either a human or machine) it is still run and pushed forward by humans at every single step. The framework was designed to allow numerous different actors to grow it and expand its varied uses but ultimately these have to be numerous conscious, independent actors working within that framework. This negates any notion of an autonomous self running purely digital corporation as some of you are discussing.

    • Basically, Bitcoin was formed, developed and is still pushed forward randomly by motivated spontaneous action on the part of numerous conscious humans. How could any machine formed and controlled “autonomous” corporation do this without a certain conscious background actor who would then obviously be its owner running and propelling things.

      • The same way Bitcoin does. In a sense, Satoshi is “running” things, in that his protocol is the filter through which everyone’s actions must pass. Similar, if “Bitgov” was released, the creator(s) would be the ones defining how things work, but from that point on, it would be in the hands of those doing the actual work, to some degree or another.

      • Note too that interestingly, this kind of implies that many such autonomous systems would likely NOT be for-profit, but rather with some other ongoing goal in mind. After all, most might balk if they read the code and saw it funneled bitcoins into some shadowy address or wallet. And if the program WASN’T designed for the creator(s) to profit, then what’s the point of trying to gather profit at all? Paying employees/contractors/etc. well for their work could hardly be called profit, and not having profit as a requirement (merely lack of losses) would actually allow for lower prices, no theoretical tax burden, higher salaries and possibly even a more streamlined design than traditional structures could achieve.

        • There are a couple of possibilities as I see it. The simplest is to just start off one of these autonomous systems with an initial debt. That would cover the development costs of the developers. In a way, pre-mining that is done by alt-coins is somewhat similar (not exactly but somewhat because altcoin premining is more like equity than debt) in this regard to compensate the devs. Another is, just like open source, the goal is common good – imagine if you can get services at incredibly cheap rates, so it opens up whole new markets and then there could be secondary markets that actually use this cheap underlying and build a viable business on top of this, adding value that only humans could deliver.

  14. Seems more like a fantasy. Don’t get me wrong, I like the scenario, especially the part where the banks are removed from the picture.

    Corporations require ideas, goals, purpose, missions, and projects. They need charters about dealing with business partners and customers, and means to make sure they adhere to those. What about arbitration? Who would deal with a corporation that does not provide fair redressal of issues?

    If the technology for such level of autonomy becomes available, autonomous corporations will be one of less interesting developments, there will be things far more wondrous, captivating our attention, some of which will probably even render the idea of a corporation redundant.

    Perhaps in 20 years, we will be closer to this level of technology.

    • You should read the article again. This isn’t some high-flying AI we’re talking about here, it’s corporations that provide basic services at a far lower cost, so it can open up pockets of the economy that weren’t possible before. A simple autonomous corporation doesn’t need anything that you mention. The Bitcoin protocol takes care of the arbitration problem as there’s no way for the corporation to steal your money and no way for you to steal the corporation’s money – if you don’t trust the corporation, don’t do business with it. It will be very happy to exclude your business. All the technologies that you need to make this happen are currently present. Bitcoin solves the most important part of the puzzle – money.

  15. I see this as a natural progression of people who care about Earth. Clearly existing corporations are destroying our planet so we need to develop new ones. It may sound like a fantasy but big changes are coming if we plan on preventing extinction in the next 200 yrs. I prefer a new kind of currency to other types of revolution. Imagine huge Harbin’s (the smog shut-down city in China).

    • Fred, that’s a very good point. Autonomous corporations will be more efficient in dealing with natural resources and they can be programmed in a way to look for the most ‘green/efficient’ solution rather than the cheapest solution. People would pay a higher price knowing that the corporation behaves this way, thus ensuring it’s survival.

  16. I completely agree with this article, I think autonomous corporations are one of the new forms of organizations which will appear in the future thanks to the advent of cryptocurrencies and the new business models they bring along. I am talking to Bitcoin startup entrepreneurs on a daily basis, a few entrepreneurs did not see the need to incorporate a company as they operate entirely in bitcoin. They will register a company because it is the only way to obtain further funding – and we advise them to do so – although we know of several bitcoin investors who are not really worried about the legal structure. Despite some of their flaws – mostly due to their very early stage of existence – I also think there is a future for bitcoin securities exchanges and in any event the concept has been proven by the successful listings of several entities. I know there have been issues with some listings but I can recall examples of much larger ‘scam IPOs’ on regulated stock exchanges in fiat currency, specially in the internet years in the late 90s, with licensed underwriters and the stamp of approval of large banks..
    I have read about the possible model of bitcoin wallets interacting with each other through APIs, sending bitcoin to the wallets of the cheapest service providers and receiving bitcoin from the wallets of the serviced clients, the potential core service of this system of automatized transactions was cloud hosting, but it could work for other services as well.
    I think it is time the old company registration model is ‘upgraded’ to take into account the global aspect of organizations. How relevant is a global company ‘country of incorporation’ when all its services are online and its clients around the world.. These corporations although known under one global brandname such as Amazon or Google are actually a collection of entites spread across nations to optimize the tax structure of the group. Government frustration in front of the complexity of these structures has been heard in the past few months with threats of huge tax fines but this only proves the disparity between an obsolete model and the new forms of organizations. It would be less hypocritical to move to a different form of organization altogether instead of trying to contain malleable, dynamic and intelligent organizations able to adjust to and anticipate new fiscal laws beating therefore the very same purpose these governments are trying to achieve.

  17. You forgot to include the world virtual. What you are citing is an “entity” that exists “in the cloud” and provides a service that is digital. Any real assets could be seized by the government whose territory they exist in. BTW, just because it is in the cloud doesn’t mean it can’t be tracked and disrupted by governmental entities. Furthermore, if you really want to be technical, there is plenty of digital assets that are amorphous (i.e. that are “owned” by those who possess the digital key to unlocking the account).

    • I think you missed the whole point of the article. The same way it is theoretically possible for the government to seize all Bitcoins, I guess it would theoretically be possible for such an entity to have its assets frozen but you see the problem – you’ll have to shut down vast swaths of the economy. Also, this has nothing to do with the amorphous assets you refer to. I recommend reading about StorJ and how it is supposed to work to get yourself a little familiar with these. I know it can be hard to envision something without a strong precedent.

      • Thank you for your reply.

        You say that “…for such an entity to have its assets frozen…you’ll have to shut down vast swaths of the economy.”

        I think you overestimate the consequences of such an asset freeze. Bitcoin is a relatively small pool of virtual money (which is why it is vulnerable to wide value swings and attacks). BTW, are you aware that each Bitcoin contains the algorithmic-encrypted record of the history of the currency? Certainly the NSA has the ability to decode and backtrack such a record, regardless of how well protected the encryption.

        “Also, this has nothing to do with the amorphous assets you refer to.”

        I disagree – the similarity between other virtual assets and Bitcoin is clear. Digital property is digital property. Heck, Bitcoin isn’t even valuable information that can be leveraged in the real world to further technological growth (like, for instance, genomic information, or a physical formula of some type – like the secret recipe).

        • I think you underestimate the encryption technology behind Bitcoin. Yes, each node contains a hash of the previous tree, in a Merkel tree, which means a single node in the tree can represent all the previous transactions in a hashed form of course. Saying that certainly the NSA can decode it is a very big overstatement. Care to elaborate? If the NSA has this ability, you do realize the world has got bigger problems than worry about a 3 billion dollar Bitcoin economy right?

          I wasn’t talking about Bitcoin but an autonomous entity in my amorphous comment. There are several ways to split up the private key so that it can be safe from ‘stealing by owners’ e.g. Shamir’s secret key algorithm. This will be used when the entity wants to spend money. The public key is sufficient to receive the money. Remember also that public-private key pairs can be generated at will, so it can easily be segregated into functionality which means a compromise at one stage doesn’t mean the death of the entity but if it can take a loss, it will continue operations.

          Thanks for dropping by mate!

          • I only ask you to entertain the scenario (not unlikely at all) that the US found Bitcoin to be a threat to national security. How long do you think it would take for them to (virtually) reduce it to ash. Same way with the virtually economy generally – it is true that it can be structured like terrorist cells, where if one part falls, the other parts remain, but like all things, it would be like an ice berg, where a part is visible, while most is subterranean. A determined effort by the NSA would again have very predictable results. I don’t want to scare anyone, but it is safe to say that the governments are inevitably going to be the only game in town, and Bitcoin ain’t it.

        • I disagree. I know it’s hard to imagine, but the world is bigger than the US and it’s paranoia. If the rest of the world finds something useful and can solve problems like nothing else can, it will be adopted, with or without the US.

  18. An autonomous “legal framework” entity of some sort would nice for Bitcoin. Everyday I hear about someone losing their Bitcoins and they have little means of retribution. To me this is one of the main reasons that Bitcoin hasn’t gained main stream acceptance.

    • Shawn, that’s a trickier issue to address. There were talks of a few hardware solutions that would take your biometric data, encode them, and store it on the device for you, so if that device holds your Bitcoin, it cannot be stolen unless the biometric data matches. I don’t think any such hardware wallet solution is in the pipeline in the near future, but I am sure there are people working on these. It’s good to remember that crypto-currencies are pretty new and it takes time for the technological adoption and solutions to be built around the protocol. Think of how the internet evolved and the time it took for companies like Google to come up from the time the initial protocol was established.

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