One of the most cited economics papers of the past 50 years is Jensen and Meckling’s “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure”. They advance the theory of the public corporation as an ownerless entity, made up of only contractual relationships. They build on the ideas of Nobel laureate Ronald Coase who explained how contracts allow firms to act as a cohesive entity making them more efficient than individuals, thereby giving firms their raison d'être.
If a firm is just a collection of contracts, can blockchain contracts, aka smart contracts, be the basis of firms of the future? Indeed, blockchains are being heralded as providing the backbone of companies to come. Think not of a single smart contract that manages the interaction between two parties, but think a slew of smart contracts that define the obligations and rights of many members of a large collective.
Aragon is one company facilitating this new order on the Ethereum blockchain. Hundreds of organizations (or DAOs) have already been created on it’s platform, which deploy a number of fundamental smart contracts to manage an organization. You can even run it in a browser here, and deploy your organization in less than 5 minutes (note: you’ll need $3 of ether to pay the blockchain).
Aragon creates contracts that manage multiple functions of a company, including: granting access to company accounts, defining who has permissions to move funds, assigning and managing internal tokens to designate ownership (akin to a cap table), financial operations and payroll. It also includes a dashboard to add other apps such as one for project management, one for data sharing, and others. Finally, it provides the infrastructure to create your own apps that integrate with it.
The essence of a company is that it exist beyond the lifetime or involvement of any one individual, and its ownership can be freely transferred to another party. This important function is what Aragon provides.
Of course companies are also created for how they are treated by nation states in terms of liabilities and taxes, and the benefits that come with it. In addition, just having an organization incorporated under state law gives it immediate credibility. These benefits do not yet exist with a blockchain-based organization. It will take time for governments, organizations, and individuals to assign this validation and weight to blockchain entities. But just as company structures evolved from the Dutch East India Company, the first public company, to the Ubers of today, they will continue to evolve. Blockchains, with their power to unite individuals in ways that are more transparent, global, democratic, flexible, and interoperable, will play a vital role in this evolution.
Dr. Lederer has over 15 years of technical experience in computer system design and programming. He has been teaching about blockchain and Ethereum for 3 years and recently co-authored Blockchain: A Practical Guide to Developing Business, Law, and Technology Solutions. Prior to working on blockchain technology, he worked at The Wall Street Journal, Morgan Stanley and BAE Systems, where he held a DoD TS (top secret) clearance to develop a novel mobile ad-hoc network for the US Air Force.