The Implications of Crypto Assets Part 3: Distributed Autonomous Corporations

In part two of this series on crypto assets, we discussed all of the implications for decentralized exchanges and blurring the line between IPOs and crowdfunding. Those concepts are definitely exciting, but not as exciting as distributed autonomous corporations (DACs). It’s amazing that anyone in the world will soon be able to issue their own IPO without any filter or fee, but what if the company that was going public was also a completely autonomous entity? Instead of creating a new online sportsbook and then taking it public on Colored Coins, what if you coded a completely autonomous corporation that took wagers from two parties and released the funds to the winner once the sporting event had completed? What if you coded a distributed application that could replace Facebook and Twitter, without the need for ad revenue and privacy concerns? What if you could monetize free and open source web applications? This is the future of the Internet. This is the distributed autonomous corporation.

The Basics of Distributed Autonomous Corporations

Namecoin

Namecoin logo

The best way to explain DACs is to look at Namecoin. For the most part, altcoins are viewed rather negatively; however, there are a few that are actually worth your time. Namecoin is one of those coins because it is a distributed autonomous corporation. The corporation sells domain names on a decentralized domain name system (DNS). If you want to buy a .bit domain name, you have to purchase it with namecoins; that’s what gives namecoins their underlying value. Namecoins are mined in the same manner as bitcoins. The only real difference is that namecoins can be used to purchase domain names, while bitcoins are simply a currency. Namecoin miners are verifying transactions and letting everyone know who owns what domain name. This is why it is not crazy to say that namecoins actually have more intrinsic value than bitcoins. Bitcoin was actually the first DAC, and Namecoin has already proven that it won’t be the last. There are currently dozens of DACs in the works, and all of them are going after centralized services to provide a better, decentralized product.

How Do Investors Make Money?

Different DACs have different models when it comes to creating profits for their investors. In the cases of Bitcoin and Namecoin, the profits come from the fact that the nominal values of bitcoins and namecoins go up as more people use those particular DACs. As long as the customers of a particular DAC want to use that DAC’s services, the currency behind it will have value. Other models can also be created where holders of the currency behind a DAC can be paid dividends on a regular basis. The best part is that we are probably going to see many different DACs going after the same market. The DAC that creates the best automated model for both investors and customers in a particular market will be able to come out on top. This is capitalism in its purest form.

The Competitive DAC Market

There are many different projects being built around the concept of distributed autonomous corporations. Invictus Innovations, Mastercoin, NXT, Ethereum, and many others are all vying for their places in the space, and you’d be insane to think that you could pick a winner right now. Each organization has their own method of going after the basic structure of DACs, and the only projects that will be able to survive are the ones that offer the user exactly what he or she needs at an affordable price. At the end of the day, it doesn’t really matter which project ends up producing the platform that everyone uses to interact with DACs in the future because we’re all winners in the end. The only losers from the creation of this technology will be the current centralized corporations and organizations who dominate the Internet. When you look at Ethererum, Mastercoin, Invictus, and the rest of the pack, you could be looking at the Googles, Microsofts, and Apples of the future. Then again, the current tech giants could always adapt.

Who Will Be Affected by Distributed Autonomous Corporations?

If there is a centralized service on the Internet right now, you can bet that it will eventually be replaced by a DAC. Everything from YouTube to Facebook is fair game, and it will be difficult for these centralized institutions to keep up with distributed applications that have little to no overhead. The idea of distributed autonomous corporations already exists, so now we just have to wait for the programmers and entrepreneurs to create the applications that build on the original thought. We’re usually talking about dot-com companies disrupting various industries around the world, but soon we are going to be talking about the new DACs that are disrupting the dot-coms.

Monetizing Open Source Software

The last point that needs to be made when it comes to DACs is that they will add the kind of profit motive for free and open source software that simply did not exist in the past. Some of the decentralized applications that we see built in the coming years are going to be projects that have basically stalled out because there was little to no profit incentive for the developers and supporters of the projects. You can only go so far with donations. One of the reasons email is a disaster when it comes to privacy is because there is no profit motive driving entrepreneurs to create a better solution. Gmail doesn’t cost any money, but it also mines all of your private messages to target you with advertisements. This means that your emails are being read by Google at some point, even if it’s only by a robot. Someone could have made a free alternative to Gmail that relied on donations to stay afloat, but it would have been an inferior product that was difficult to market to the general public. When you can create an encrypted email DAC that focuses on privacy and providing a quality product that can rival Gmail, it becomes much easier for the general public to care about computer security. This is just one example of the many free, open source software DACs that we are going to see in the near future. The GNU/Linux fanboys have been talking about the era of open source for decades, and the combinations of recent NSA revelations and distributed autonomous corporations could be the catalyst to finally bring the free software movement to the masses.

The Best is Yet to Come

The most exciting aspect of learning about distributed autonomous corporations is that some of the best ideas probably haven’t even been created in the form of thoughts yet. We are about to witness the kind of improvement in the efficiency of the free market that we have not seen since the invention of the Internet. This is why people say that Bitcoin is the most important invention since the creation of the Internet, and you’ll have more reasons to believe that idea as time goes by.

 

 

Part 1

Part 2

Part 3