Algorithmic Business

A few weeks ago I wrote about algorithmic emotions, or how the way information is propagated is influencing our daily lives. Today I want to write about a specific event (it’s a piece of news in the law / financial / regulatory area) that, although being somehow linked to algorithms, has a much better potential.

A week ago, in Wyoming, a US state which is very crypto-friendly, the first DAO has received legal status. In other words, a Decentralized Autonomous Organization, built around a blockchain, is now equal, from a legal standpoint, with any other legal business entity. This specific DAO was built, quite surprisingly, on EOS, not on Ethereum, which is the inventor of the DAO, so to speak.

I think this news is very important.

But before diving in, a short recap: a DAO functions differently from an LLC, as in all the contracts and decisions are immutably written on a blockchain, in which all the participants have a say, according to how much stake (literally and figuratively) they own in that DAO. Of course, the governance itself is not immutable, the decisions can be altered, if a majority of votes is reached, but the initial process is started in an immutable way, it can’t be modified. Also, all the decisions are public, as well as all the finances. It’s an unprecedented level of transparency.

How this may change the way we do business?

First of all, any new business, being it a grocery store, with only 2 founders, or a large, horizontal community spread around the globe, can be as transparent as thin air. Both to the participants, and to the outside world (I think here we will start to see some levels of privacy, though, as not all the processes of a business entity may be public, some are linked to private identities, or to people who must preserve their rights to their privacy).

But even if some privacy will be in time applied to identities, which may as well become pseudonymous, the records will be public. The value of a company will be evaluable instantly. So, whoever wants the token of Grocery X, could buy it, freely (again, if Grocery X allows this, but I assume many business owners will allow parts of their companies to be publicly traded from day zero, specifically to attract liquidity and streamline cashflow).

It’s not very difficult to see how this can be algorithmically implemented. Just how bots are arbitraging now between exchanges, a new range of bots may be able to arbitrage between hundreds of thousand of businesses. Liquidity will flow in and out of businesses in real time.

The upside? If you’re flexible and can provide a good service, you can get rich very fast.

The downside? Even if you’re flexible and can provide a good service, complex financial instruments on top of these tokens (options, futures, etc) can become a hindrance just as fast. In layman words, you may get squeezed by speculators, whales or groups of interests, without even knowing what (or who) hit you.

All in all, we live in very interesting times.

Photo by Markus Spiske on Unsplash

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