How Blockchain Will Facilitate a New Kind of Company

Rachel Zurer November 1, 2018


Getting a handle on what the tech company DAOstack is up to almost requires learning a new language. First, there are all the names for the future the team is working to manifest: “the collaborative economy,” “the new economic paradigm,” “civilization 2.0,” “an anti-rivalrous economy.” Then there are the terms for what the company’s various tools help create: “decentralized governance,” “coherence,” “self-organizing collectives,” “decentralized autonomous organizations (DAOs).” And of course there’s all the tech-speak related to the platform itself: “blockchain,” “ICOs,” “crypto-tokens,” “stacks,” etc.

Luckily, Josh Zemel, DAOstack’s communications specialist, has a lot of practice explaining it all in simple terms. “DAOstack is designed to catalyze the future of collaboration,” he writes in a Medium post about what the organization does. “It’s a platform for decentralized governance that enables collectives to self-organize around shared goals or values, easily and efficiently. DAOstack is sometimes called an operating system for collective intelligence, or a WordPress for DAOs.”

DAOstack At A Glance

  • Location: Israel, US, and other countries
  • Founded: 2017
  • Team Members: 20
  • Traction: Rapidly sold out its ICO in May 2018 at $30 million.
  • Impact: Several blockchain organizations are already building or planning integrations with DAOstack’s technology, including Gnosis, DutchX, and Sapien.
  • Structure: LTD that functions as a non-profit.
  • Mission Statement: “To catalyze the future of collaboration.”

While DAOstack’s alpha-phase software platform is a long way from mainstream, its potential to help reinvent corporate governance is already gaining traction: its initial coin offering — a fundraising mechanism using crypto-currency — sold out in 66 seconds and raised $30 million in May 2018.

Understanding the company’s vision and the concepts behind it is worthwhile for any business leader who values looking ahead toward the evolving potential of what a company can be — in other words, anyone dissatisfied with how today’s traditional corporations operate. “The power of blockchain really lies in its ability to facilitate coordination, collaboration, and coherence,” Zemel explains.

CCM editor-in-chief Rachel Zurer recently sat down with Zemel for an accessible, beginner-friendly conversation demystifying blockchain, DAOs, decentralized economies, and more. Read on for the basics, (and here is a deeper dive on how DAOstack works).

Josh Zemel

The Interview

How would you explain blockchain to someone who really doesn’t know what it is about? I feel like we’re in 1992 and trying to understand the Internet, this huge thing that’s about to affect everyone but is really hard to picture.

Josh Zemel: Blockchain is a distributed ledger, which is basically to say a database — a list; except unlike a list you would store on your hard drive or that the government or a bank or a tech giant might store on their servers, the blockchain is a list that’s basically smeared and duplicated across lots of computers, what are called nodes — which could be people’s personal computers or otherwise. That’s what helps it be secure and trustable.

It’s similar, in a lot of ways, to torrenting technology. Let’s say you’re wanting a file of a blockbuster film. Instead of you downloading it from Amazon or iTunes, where it’s hosted on their servers, torrenting means you’re downloading it from thousands or potentially millions of people’s computers, people just like you, running torrenting software. It’s sort of fragmented and smeared across the internet, if you will.

Then, in addition to being fragmented and smeared, blockchain data is also layered with oodles of cryptography. Every instance, every actual piece of data that’s listed in the blockchain is piled upon by essentially meaningless calculations that computers are doing just to create these layers of undoable cryptography.

So, essentially, to maliciously manipulate a record that’s already been inscribed in the blockchain and agreed to by the various nodes or hosts, you would need to crack virtually immutable cryptography and do it thousands or millions of times over, across all the different places where this information is being hosted.

So blockchain is a solution for creating a shareable database that is secure and highly trustable without needing to presume trust in any particular person or institution. It essentially allows you to trust everybody, or, more accurately, it eliminates the need to trust anybody.

How does that change the economy and relate to collaboration?

JZ: The blockchain was originally created for the purpose of securely storing information about financial transactions, namely Bitcoin transactions. It was envisioned by this anonymous Bitcoin creator, Satoshi Nakamoto, who may or may not even be only one person.

The idea was, if you say you are giving me $100, what does that actually mean, to give me $100? Well, one thing it means is that my account needs to go up by $100 and yours needs to go down by $100. Right now, we have ways of letting our third-party institutions know that you are choosing to give me $100: either you give me a green piece of paper that the government has said represents $100 and when I put it in my bank, my number goes up, whereas your number has gone down, or you tell your bank to authorize the transaction on a special piece of paper called a check, or mainly these days you use your credit card or some application to authorize the transfer. All of these are mechanisms by which our accounts are adjusted, trustably.

Of course, in all those cases, we’re trusting other people to adjust those accounts and to verify the authenticity of that transaction. Satoshi envisioned a world in which we could basically eliminate that need yet still have my account go up and yours go down accurately and trustably.

In this transparent list that’s smeared all over the world?

JZ: Yes. Tracking transactions was the original purpose of blockchain, and it remains one of the most powerful applications of blockchain.

Some other folks, though, came along a few years after the blockchain was invented, mainly the guys who invented Ethereum, Vitalik Buterin and friends, and they thought, “What if we could use the blockchain ledger to say not only that you gave me money, but to say that anything happened? We could write anything into the blockchain.”

Like giving me a house.

JZ: Yes, exactly. And let’s take it a step further. What if we could actually program functions into the blockchain that we agree will happen upon certain conditions? Basically, simple programs. For example, not just you gave me your house, but you will give me your house. You will give me your house once the inspector digitally signs a report. You could actually have the blockchain not only keep a record of any type of agreement or event, but you could actually have the blockchain execute certain types of agreements or events.

Once certain conditions are met.

JZ: Right. So this was the rise of what’s called the “smart contract” and the Ethereum network. The Ethereum network is basically a decentralized world computer. If the Bitcoin blockchain is a decentralized financial ledger, then the Ethereum network is a decentralized world computer. You can actually program it to do anything, which is to say it’s what’s called “Turing complete.”

Now, you wouldn’t want to
program the Ethereum network to send your email or edit your Pho
toshop files or really do anything common that you use your personal computer for. It’s something like a billion times slower than a personal computer because it’s distributed and duplicated, which means you need many, many different node-holders to agree on any given thing that happens.

It’s really useful, not for Photoshop, but for simple functions that require low speed but very high security and trustability.

Like an inspector signs a document and then I give you my house.

JZ: Sure, like the transfer of a home, or the transfer of large amounts of funds, or the transfer of voting power or reputation points, — these sorts of things. People started envisioning all sorts of different ways to take advantage of smart contracts, code written on the Ethereum network to execute on certain conditions. They started envisioning different ways to use this technology to build this decentralized economy that people have been dreaming of for a long time.

Can we pick apart that phrase “decentralized economy?” When I hear the term “centralized economy,” I think of the Soviet Union. That’s the most extreme version of a centralized economy I know of, where the government is planning who’s planting what in every farm. Isn’t our economy, compared to that, already a decentralized economy? I assume you mean there are significant steps further. Can you explain what that means?

JZ: Sure. A better word for the way our economy works might be “democratized” in some way. When we say “decentralized,” we mean not just decentralized away from government or authoritarian control. We mean that organizations are themselves owned and operated in some kind of cooperative fashion.

In a traditional organization, who decides what happens? It’s basically a hierarchical decision-making structure. Different people have different decision-making power, but they’re generally answering to other people who have hire–fire authority over them, on and on and on.

One pitfall of this kind of system is that the incentives that drive the decision-making of the senior
decision-makers are often different than the incentives of the users of their products, as well as often different from those of the vast majority of people who work at the company. What we’re wanting to see more and more, and what the decentralization movement promises, boils down, in some sense, to greater incentive alignment among all the stakeholders in a given decision — owners, users, workers, etc.

Facebook is maybe an easy example to illustrate with, because Facebook is just software, so the decisions that Facebook makes are right there on the screen for us to see. Who decides what appears in our Facebook newsfeed? Facebook does. And what incentives are they beholden to? Not really incentives that are aligned with the interests of the users. They need to pay enough respect to the desires and needs of the users so we don’t go away. But according to the way their incentives are structured, that’s as much attention as they should pay to our desires.

If they’re being maximally efficient, they’re doing just what they need to keep us around. The traditional economic incentive is that they want to make as much money as possible. I think Facebook might argue that it has a different goal: connecting people or helping humanity work together or something. And most of our readers have a company that does have a goal beyond just making money. But I guess it’s still that company’s goal.

JZ: That’s exactly fair, and no knock on Facebook, per se. And really, no knock on centralization, in general. There’s a good reason that hierarchical decision-making trees exist. It’s because they’re relatively efficient, and until now or recently, maybe the only reasonably efficient way to point a ship that has a huge number of people on it. It’s easy to steer a cruise ship when you have a single captain or a small team of navigators. It would be very hard to decide where a ship is going if you were trying to incorporate the will of all the crew and passengers into every matter of navigation.

Yeah; to switch metaphors, even just deciding where to go to dinner is hard once you get to 20 people, much less 20,000.

JZ: Exactly. Depending on your objective, you might be able to build coherence in a social fashion if your organization or your project is roughly up to the size of a Dunbar tribe, 100 to 150 people, which is basically small organizations. Once you get to a larger project size, you need to build coherence asocially. When you’re trying to achieve something at the scale that Facebook or an oil company or a government does, you risk devolving very rapidly into massive inefficiency if you try to incorporate the interests and voices of too many people.

Hence owner–operators, CEOs, bosses, or inventor–owners of a thing basically get to continue running the thing. You know, Google continues to run Google Search and say what search results show up.

Google gets to tell people what it means to optimize for search results. They decide what makes a good webpage.

JZ: Exactly. Which is not inherently a bad thing, and in a way, that’s capitalism. But the idea of a decentralized economy is that, to use the example of Facebook, you’d have a social network where it’s by the people and for the people. Where decisions are either made by the wisdom of the crowd through some sort of governance protocol that incorporates a lot of voices, or, if there is some sort of delegation, which often there would be, at least that decision-maker is incentivized to act in accordance with the common good. They’re not going to hold on to their decision-making power if they don’t act in accordance with the common good.

That’s different from how it is today in a traditional capital environment. You often hold on to your
decision-making power despite acting against the common good directly.If you’re the CEO of an oil company, for example, you have a direct incentive to misinform the public about the value of alternative energies and the danger of fossil fuels. You’re doing a good job if you effectively create a ruse that causes people to turn the other way around climate change or deforestation. That’s the way the incentives are set up, and in a way, it’s almost forgivable from that standpoint. Our friends, futurists like Daniel Schmachtenberger, might say something like, “It’s actually not his or her fault. It’s just the way the incentive structures are set up.” Well, we want a situation where everybody is actually incentivized to do the right thing.

Who decides what the right thing is?

JZ: We could probably set some parameters that define what’s a good outcome and what’s a bad outcome, but that’s not even that important. What’s more important is that you just have more voices included in determining what is and what isn’t a good or bad outcome. Are we going to have a better or a worse newsfeed if the nature of the newsfeed is answering to the interests of all the users, as well as all the owners, as well as all the developers – especially if all of the above are financial stakeholders in the organization, so that they can all consider all aspects of the situation? We’re probably going to have a better newsfeed.

Probably. Yet we do have this mythology about the visionary leader. I didn’t know I wanted an iPod until Steve Jobs envisioned it. Would I have voted for a thing that maybe I didn’t totally understand?

I’m having the thought, “This sounds like it could be a mess if we’re trying to have an economy run on this.” Help me understand how we’re going to make sure all the messes don’t happen.

JZ: This is a good point. To be clear, I’m not suggesting that all decisions get massively democratized. We’re not going to see a vote among all Apple customers on whether Apple innovates some new particular product or not. What we might see, in a decentralized version of Apple, is a different degree of accountability where the so-called leaders of an organization might be beholden to a broader set of interests, such that if they act out of alignment with those interests, they might see their influence go down. And perhaps also that more people are able to participate in proposal-creating and decision-
, but decision-making would still be limited to those individuals who have some credibility in the particular domain the proposal is related to.

It’s a meritocratic system that we’re describing. And you’re absolutely right that it’s a very complex challenge. What sorts of protocols would we need to set up in order for a crowd to make good decisions together?

What sorts of protocols would we need to set up in order for a crowd to make good decisions together?

Is that, essentially, one of the questions DAOstack is going to answer?

JZ: Yeah. Matan Field, the architect and co-founder of DAOstack, is fond of making this distinction: in decentralized governance, by which we mean decision-making protocols for groups of people in the absence of centralized leadership, you have this tradeoff between efficiency and resilience/incorruptibility.  Basically, the more you try to distribute decision-making throughout an organization — and the more you thereby make it resilient, which is to say unable to be corrupted by bad acting among a few power-holders — the less efficient your process is likely to become. A good example might be a noisy neighborhood association that can easily devolve into massive inefficiency. On the other hand, as you favor efficiency — which is equivalent to scalability, measured in terms of the number of decisions an organization is capable of processing in a given period of time — you are exposed to greater corruptibility. And to be clear, “corruption” is not just bad influence or bad acting. It can also just be bad judgment or decision-makers having incomplete information.

When I hear the word “corruption” it feels like this James Bond-y thing. But you’re saying corruption can just be a lack of knowing. I’m thinking about how our magazine gets made. It’s mostly me, with our CEO Meghan French Dunbar, deciding what goes in. That’s not very resilient. I know I have unconscious bias, I have knowledge gaps, I lack information. With a lot more people deciding what goes in, there would be a lot more insight about what’s going to truly serve our community. But I don’t know how to do that in any efficient way.

JZ: That’s right. The more you can decentralize your organization, the more it’s resilient to bad acting or the bad judgment of a few centralized points of failure, but the more inefficient that can easily become. What you need in practice are some fairly elegant solutions to solve that problem, governance protocols that allow an organization to make really efficient decisions while also incentivizing everyone to favor really good decisions, ones that are aligned with the whole of the organization and even with the greater common good.

Ok, to summarize: We’ve got the blockchain, all the information smeared all over. We’ve got Ethereum, where we can create actionable, smart contracts — things can happen with the blockchain; we’re not just keeping a list. We have this concept of a decentralized economy, meaning that decision-making is not so hierarchical, even within companies or organizations or projects. Those are the pieces we just put on the table. Bring them together, please.

JZ: Let’s do that by adding in the concept of a DAO. A DAO is a decentralized autonomous organization, and it’s basically a blockchain-based smart organization. It’s a very popular idea, although DAOs don’t really exist yet, except in some very prototypical forms. But there’s a belief within a lot of the blockchain community that we’re going to see the rise of the DAO.

The DAO is essentially an organization that is entrusting into smart contracts some of the functions that an executive might typically perform. For example, you would have your smart contracts in the DAO tallying the will of the people, however the will of the people is measured, which is TBD on a DAO-by-DAO basis.

“Who has influence?” and “What do the people who have influence think we should do?” are central questions in any organization. In a centralized organization, you have a person or a group of people who say who the influencers are, tally the will of the influencers internally, and then carry out a decision accordingly. But in a DAO, you have agreed-upon protocols for collecting human input and outputting decisions that do not require centralized arbiters. You also, by the way, need protocols to change the protocols. Governance protocols are just ways of turning human input and opinions into decisions.

In a DAO, the smart contracts do that — not an executive, not a boss. Furthermore, the smart contracts can actually execute some of those decisions. For example, if you raise a proposal to the DAO that we get a budget for a Christmas party, then whoever has influence is going to give their input, and that input is going to be turned into output in the form of a decision on whether to authorize budget for the party. It’s going to be the smart contracts that arbitrate that process, that tally the votes according to how they’ve been told to do so, taking into account who has what amount of reputation to actually weigh in on this matter. Then, if the proposal passes, the smart contracts are actually going to transfer the money to you, or to whoever you’ve said is actually going to order the party hats you proposed. A DAO is kind of like a smart contract made multi-dimensional, so that it’s a whole smart company: a collection of protocols along with the actual humans who are participating in the system they define.

But of course I just raised way more questions than I answered. Who has influence to make decisions? How does that change over time? And just as importantly is a question that many people who have been thinking about DAOs and decentralization have perhaps overlooked until recently: how do we even decide what proposals are worthy of the attention of the voters? It turns out you need systems not only for determining who gets to vote on what, but also for what proposals even deserve to be voted on.

It’s those types of questions which DAOstack offers tools to begin answering. The platform includes sets of protocols for actual group
decision-making at scale. Yet DAOstack also offers, essentially, a very modular protocol-building environment. We’re aware that we don’t know how decentralized decision-making is actually going to work at scale for all different kinds of organizations. We have very little idea, actually. So we’ve built not so much the LEGO spaceship, but the LEGO building blocks to build spaceships of varying shapes and sizes. We’ve created this modular library of bits and pieces of governance infrastructure — different types of voting machinery, different ways of easily creating constraints over a whole system, and so on. Basically, we’ve created a way of building your own governance templates, and we’ve also provided some pretty advanced starting templates.

All of that put together is what we call Arc, the first layer of the DAO stack. It’s written in Solidity, which is a coding language for writing smart contracts. In practice, it’s a fairly small fraction of people who are going to interact with the DAO stack at that level. So we also built a JavaScript library that allows any developer to build a custom application without needing to be familiar with Solidity or blockchain coding. That’s layer two.

Then, another layer, let’s call it layer three, is the collection of front-end applications that are going to be built on those first two layers, user interfaces that allow anybody to be part of an organization or even to create an organization without a technical background.

On which you can drag and drop the conditions for a contract to execute?

JZ: Yes, and let’s even take it a step beyond: to participate in the organization. How are you going to propose your Christmas party? You’re going to propose it through application interfaces. You don’t even need to know that there’s blockchain involved, per se.

You can create your task in the queue, you can propose funding, you can get funding, people can vote. People are going to assign reputation currency to one another, or set up rules by which reputation transfers automatically. If people say after the fact that they think your Christmas party was good, you might get more reputation.

We’ve built a stack of technologies that provide accessibility for everybody, from the most technical blockchain governance geek all the way to the most non-technical participant in a decentralized organization, to be able to present and vote on ideas. That’s the DAOstack in a nutshell.

In practice, how far along is it?

JZ: We’re in alpha release, and we’ve deployed the first DAO built on the DAO stack. Oh, and all those applications that will be built on the stack, by anyone who chooses to? We have already built one of them.

You built the first.

JZ: Right. It’s an application for participants in a decentralized organization to share ideas with one another and make good decisions together, with a specific focus on budgeting and allocating resources. Because that’s a huge decentralized governance use-case, if you think about it:  deciding what to do with resources. That application is called Alchemy, and it is also in alpha release.

Basically, the whole stack has been deployed, in alpha form, along with a DAO that is also in alpha form. That DAO is called the Genesis DAO, which is ultimately going to be responsible for most of the funds we raised in our token sale, which at the time was $30 million. The Genesis DAO will assume actual control of the funds gradually, as it demonstrates greater and greater stability and security.

We asked the questions, “How is this money going to be deployed in service of extending the DAOstack ecosystem, extending the utility of the technology, and bringing about the collaborative economy? Who’s going to decide how it’s going to be deployed?” Well, it’s going to be decided by the community of reputation-holders in the Genesis DAO, with literally anyone, reputation-holder or not, able to submit proposals to the Genesis DAO. And this is already happening, in small form at first. It’s actually very, very innovative: taking a significant amount of funds and determining their best use in a truly decentralized fashion, using scalable, resilient, blockchain-based decision-making protocols.

I have a big question that keeps coming up for me. Underlying the technology, there still are humans wanting to achieve something, even in working together to create the protocols. And the DAO and blockchain helps make it much more efficient. But where’s the love?

JZ: My view is that if there isn’t any, then there’s probably going to be failure. Practically speaking, a DAO is going to be a collection of human relationships. Not between everyone and everyone else within the organization — that’s exactly what’s not possible at scale, and why DAO technologies become necessary if you’re going to provide viable alternatives to your telcoms, your social networks, your oil giants, your governments. But if you look under the hood, there’s undoubtedly going to be pods, little smart cells, agencies. There’s going to be me and you going out to dinner and talking about what we could do to make our social network’s newsfeed better, or how this certain climate solution could gain market traction. There’s going to be socialization events that occur, even if those roll up to an asocial coordination system.

It’s both, it’s absolutely both, and at that level of human relating, there’s just no substitute for coherence with one another. And there’s even no substitute, in my view, for coherence with oneself, no substitute for self-development, for self-awareness, for right relationship to one’s values. That’s all really, really important. It’s the values that we cultivate on the human level that will roll up to the values that get expressed at the emergent level by a DAO.

The combination of those two things – human intentions and technological solutions — that gives me hope.

What’s giving you hope?

JZ: The number of people who are excited about doing things differently. And that we have technologies coming online that are able to help with that. The combination of those two things – human intentions and technological solutions — that gives me hope.


Social Entrepreneurship / Stakeholder Capitalism
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