Can Crypto kill Corporations?

December 5, 2018

Different forms of corporations have been used throughout history. The first limited liability corporation was enacted in New York in 1811. Company charters were used prior to that, which allowed groups of people to band together and jointly enter into contracts. The Dutch East Indies Company is typically considered to be the first corporation after which many others were modelled. The Dutch were also responsible for one of the first recorded boom/bust cycles with the Tulip mania, which peaked in 1637, which also has similarities with the what has been happening in the crypto eco-system.

Corporations organize people into networks and enable people to trust the brands that they represent as well as have some recourse through contract law if companies do not fulfil their promises. The emergences in technology as well as shifting social norms make it more likely that corporations will become less relevant in the future. Corporations will still have a role to play in our society but it’s likely that their role is significantly reduced.

Why have corporations been important?

Corporations have been important because they act as a network that organizes people. Corporations are able to enter into legally binding contracts and own property, essentially giving them the same rights as people. This has been important because we have had to rely on legal frameworks to determine how the transfer of rights occurs and to adjudicate any subsequent disputes.

However, what if we’re getting to a place where computer code is able to replace the position that laws held, by automating compliance with contracts? If smart contracts could hold assets in a decentralized escrow infrastructure and release those assets when tasks have been completed, then would we need corporations? If there’s no longer any need to rely on laws to ensure that the transactions that are entered into are complied with is there any need for corporations that hold the same rights as individuals.

It’s already accepted that the internet drives process transaction and integration costs towards zero. This can drive outsourcing, which further encourages specialization. Driven to ad absurdum, this means that we could see people in technical jobs where their output can be quantified breaking away from corporations and operating independently, reliant on smart contracts to enable them to earn a living.

Taking a look at the changes that we’re seeing in society presently could give some insight into where we’re heading. We’re seeing these changes in how people interact with education and the beginnings appearing in workplaces, with a rise in co-working spaces as well as digital nomads.

What’s happening in education?

Schools are moving towards mission-based learning and away from focusing on subjects, seeing improving engagement and nurturing the skills that are becoming more necessary in today’s society. Learning is being focused on judgement, problem-solving, creativity, collaboration and empathy as opposed to logical and iterative processes. This makes sense as technology will likely be able to replace any iterative processes performed by humans but there will be human elements that will be difficult to replicate or replace and new roles will emerge to take advantage of them.

People are continuing to learn as they work, it’s no longer the case that people complete their education in the earlier part of their life. Education is an ongoing process. Massive Open Online Courses (MOOCs) are seeing 30% growth each year. This makes a lot of sense when you consider that kids are expected to determine what they want to do with the rest of their life when they likely have a fairly limited idea about what they’re suited to do or what will make them happy.

What’s happening in the workplace?

The change in workplace cultures could be epitomized by the WeWork phenomenon. The co-working company that started in 2010 has managed to raise over US$8bn in venture capital funding while amassing an organization of 5,000 people that operate the facilities in over 77 cities in 23 countries. Maybe the opportunities are no longer there with corporates, although that’s a difficult argument to make considering the unemployment rate in the US hit 3.7% last month. Maybe the status that comes with corporate jobs is no longer worth the hours and stress. Maybe people feel more enthusiastic about working for a smaller organization with less hierarchy where they see how what they do has an impact on the overall picture.

Digital nomads have been identified as a growing trend and as a result, there are more people that are building applications that enhance their productivity regardless of where they’re working. There has been a lot of progress in the communication apps over the last few years with Google Hangouts and Zoom making it far easier to communicate without lagging online. Other tools have also grown out of the need to collaborate at a distance, like Trello, that helps manage teams remotely; Deekit, which allows people to gather around a virtual whiteboard; and Workfrom and Nomad List, which help digital nomads find places to work in different cities around the world.

There was a bit of press recently about InVision, a software startup that has 700 people all working remotely. They’ve found that it’s a more effective strategy to win and retain top talent around the world. I’ve heard of a similar strategy from a handful of younger startups that have shunned rents in favour of being able to be more flexible and move to where in the world the opportunities or problems are at any given time.

When you combine the societal changes, more people being willing to accept remote working solutions, and the creation of additional tools, that make it easier for people to facilitate remote working, it looks like corporate headquarters are becoming less relevant. Does this mean that corporations are going to become less relevant over time? I wouldn’t be surprised if we see people strapping into their workspace through a virtual reality headset in the future. I don’t know if the technology could advance to a level that it could replace the social interactions that people crave but the desire to operate in a corporation appears to be diminishing.

Why are corporations still important?

While a majority of the tasks that are currently done in organizations could be disintermediated and done by freelancers. It’s likely that there will still be a requirement for corporations to harbor those whose roles are focused on soft skills or jobs that have outputs that aren’t easily quantifiable. In a similar way that learning is moving towards judgement, problem solving, creativity, collaboration and empathy if those skills aren’t able to be quantified then it’s likely that we’ll still see those roles administered by centralized organizations.

There’s an additional argument that corporations create a value which is greater than the sum of their parts. This could be a result of the brand value that the organization has accrued over time or synergies that occur. It would be hard to create a disintermediated system that would replicate those synergies, but the brand value of decentralized organizations could replace the brand value that accrues to centralized organizations presently.

What does the future look like?

I have no doubt that there will be a number of other protocols that will emerge as a result of cryptocurrencies that will make it easier for people to work remotely. However, at the moment, the main mechanic that crypto-currencies have created that will make it easier to work remotely is the smart contract, which can create an automated and secure system for transacting.

In a similar way that the freelancing platforms have created escrow systems to ensure that freelancers are paid as milestones are completed, this could be done through a smart contract where funds are kept aside and released when milestones are completed. This process could be automated and adapted for different roles.

Further, blockchains could be implemented that enable workers to verify the work that they’ve done with references and ratings. This could help potential hirers avoid the process of ringing around to check the references before making an offer. Overall, the whole process of finding resources to hiring them and then remunerating them could be streamlined on externally validated systems, which would subjugate the need for centralized corporate hierarchies and HR departments.

As mentioned, it’s likely that there will still be a number of soft skills that will be administered through corporate structures but it’s likely that quantifiable skills and jobs will transition to a world of freelancers and on-demand work. Protocols that are built in the crypto-economy will likely help people to make the transition that is already occurring.