Okay, it’s not dead. But, it definitely has competition.
Capitalism at its core is based on persons allocating scarce resources to exchange work (goods + services) in a competitive, open-market with profit maximization being the only goal. This competitive drive took the human race to new heights by creating new value for users to produce profits for investors. However, I believe we are trending towards a future where organizations driven by users and shareholders have competition: user-only organizations.
This desire to profit is sought by entities controlled by individuals. These entities allocate capital to obtain resources and pay workers to create a product or service purchased by its consumer. The purchase proceeds operate as (1) return of the capital and (2) hopefully produce a profit. Thus, capital flows from capital allocators to workers to consumers and back to the capital allocators in an accretive, extractive fashion. This process only became possible at scale after the creation of a legally recognized entity that separated the work from the capital. The nature of the corporation as a separate entity from an individual or the state was a technological revolution in governance. These organizations allowed capital allocators to give capital to entrepreneurs and their workers in return for limited liability and hopefully return on their investment. That was and continues to be the incentive vehicle of capitalism.
But I am not here to tell you about the past. I am here to help you glimpse into a future where this version of capitalism struggles to compete. It struggles to compete because the vehicle for the work (and incentives, but more on that later) no longer requires a Delaware C Corp and frankly no longer extracts for the capital allocators.
Capitalism struggles because cryptocurrency protocols are incentive delivery mechanisms to perform trust-minimized work.
At first glance, it seems obvious that cryptocurrency protocols will accelerate a market fueled capitalism. “Why?” you ask. Bitcoin only took ~3000 lines of code to run in the early days which is around 70 minutes of reading time based on Medium’s metrics. That’s right - a handful of developers ran bitcoin with ~3000 lines of code that someone could read in around 70 minutes.
Cryptocurrency protocols will push capitalism to new heights because the technology does not require attorneys and bankers. It only requires a few lines of code and a meandering developer.
What if I move this here? Replace this variable. Add a lookup, a restricted view key, and time lock this write function. Hmmm…
Cryptocurrencies make currencies cheap, tokenized shares ubiquitous, and enforcement code-bound. In short, cryptocurrencies make finance as cheap as cat photos on the internet, except this internet does not ask for permission. This internet is unstoppable.
While the developer may be regulated, the code is free. Rise the coder as the freedom fighter, the anon defender of networks, and, likely at some point, a martyr. These developers will throw gasoline on the fire that is capitalism as they recreate value extractive instruments.
However, while I believe this code-driven fire will help capitalism roar, I think it may be its last breath.
Step into the world of tokenizing incentives to move the work.
Security Tokens for equity and debt in traditional businesses are trending towards irrelevance. If you add the shareholder equity to a blockchain, why did you forget the rest of the balance sheet? You know…the cash balances, assets, and related liabilities? What were you thinking when you did not bother to add the revenues and expenses? Your Security Token begins to look like a Frankenstein creation, and I am not sure it is going to make it.
Meanwhile, Security Tokens of the future serve as vehicles for users to deliver the work while also participating in the growth of the organization.
WARNING: CRYPTO-RABBIT HOLE APPROACHING. KEEP YOUR INTERNET ACCESS RESTRICTED AND YOUR PRIVATE KEYS INSIDE THE VEHICLE.
Security Tokens of the future bring the work as close as possible to the chain. If the profit and loss or other parts of the balance sheet are not secured by the chain, then you do not need a security token. The smart contract incentivizes the work and secures the P&L to produce cash-flow which is dispersed to the on-chain balance sheet. Protocol-level work will be the start of this Security Token future as we see incentive driven protocols enable new types of work (Staking work = confirming transactions. Token curation registry work = trust the list. Don’t trust me. Trans-mining work = market making). The DAO rises from the grave, except this time the code really is dry. The capital is stuck in the contract. Everyone is performing different types of incentive-driven, trust-minimized work for the DAO. Enter bonded curves and the death of state-run lotteries like Powerball.
Then, we go down a weird alley.
Hmm...where am I? Is this bonded curve a Ponzi scheme or a mechanism to deliver universal basic income? Organizations that send profits to passive shareholders struggle to compete against DAC (decentralized autonomous co-operatives). The mutual company rises from the depths of competitive irrelevance. Early adopters share in profits from late adopters. Late adopters have incredible upside, as well. Multiple smart contracts move funds from one operation to another to change the incentive mechanism to perform different work for the organization. One smart contract deploys Harberger Tax to encourage those with the self-assessed taxes of property owners to fund the operations of a related smart-contract while disincentivizing those least willing to contribute by creating a code-enforced market for their property. At some point, it’s not even a Security Token. No one controls it. Everyone wants a part of it. Value flows to only those who contribute. And, we keep falling deeper.
Ultimately, the value of extraction of capitalism will be fundamentally incapable of competing in a world where the user is the consumer. The user is the worker. The user is the shareholder.