Distributed Collaborative Organizations use blockchain technology to achieve participatory governance. (Swarm)
The category of computer code known as blockchain technology has already revolutionized the world of currency exchange, as evidenced by the steady rise of Bitcoin and other "cryptocurrencies." Now a group of technologists and entrepreneurs thinks that it can do the same for collective organizations. Over a series of recent meetings at Harvard, MIT, and Stanford, Swarm's Joel Dietz, Greg Xethalis of Katten Muchin Rosenman, Primavera de Filippi (Harvard and LOVE), and Common Accord's Jim Hazard, among others, have begun to develop the definition of—and a user-friendly template for creating—what they call Distributed Collaborative Organizations, or DCOs.
As proposed, a DCO is built and operated primarily on a distributed network—that is, in cyberspace, where computer code rather than human intermediaries record transactions including the exchange of stock-like tokens. Unlike other blockchain-based organizations, including currency exchange networks, DCOs are explicitly designed to allow users active, and possibly democratic, participation in the group's management and operations. Finally, and crucially, DCOs are structured to fall outside the understood definition of a security under United States law, thus avoiding potential regulatory interference. Because of the minimal cost associated with setting up a DCO, the model provides an alternative to other, offline, corporate structures for groups that may not have access to conventional fundraising vehicles.
I spoke by phone to Dietz last month. Dietz outlined the definition of the DCO and how it differs from other organizations built on distributed networks, and talked about a few real-life examples including his own collaborative network Swarm. He also ran down some of the do's and don'ts of setting up a DCO—something anyone can do, right now, using Swarm's new staging server.
For a list of resources on blockchain technology and DCOs, see below.
ABM: How were you introduced to the world of blockchain technology?
JD: I was working in community currencies and intentional communities. There are a lot of interesting things going on in that field. But a lot of them have scaling problems, and there are also legal issues around any sort of currency transmission.
The biggest issue I found, in working on this, is the funding aspect. When you have a project that's community-driven, and you want to fund it and give the people in the community some kind of ownership over it, you don't have any obvious way of doing that.
This is exactly the problem I had. I could have gone out and raised money from venture capitalists to fund this community project, and made it scale really rapidly. But those investors are not going to have the same interests as the people who are in the community. For example, the internal currency of the community: You don't want that controlled by external venture capitalists, whose motivation is to maximize their own profits.
It's a severe conflict of interest. That's quite literally what killed my last startup. I wasn't going to raise [funds] in a traditional venture-capital kind of way. I didn't think it was appropriate.
When I looked at blockchain [technology], one of the most interesting things I saw is that [you can] build distributed governance models so that anyone who holds—it's almost like a share, where you have stock in a company. But instead of issuing stock in a company, which gives you the right to control the company, you issue a stock in a community garden, or any kind of community project, and then give it to all the people who are contributing to the [project].
When I saw this was a possibility, I said, "This is what we need to do." It solves a problem that not only I have personally, but that I've seen all across the sharing economy and other places. Either you're a co-op, which doesn't scale very well, or you're VC-funded, [in which case] the people who participate in the platform and help it grow don't necessarily benefit, or have any real control later on.
It was scratching my own itch, and the technology was a solution for something that I had seen before, and was passionate about.
Tell me about Swarm.
I saw that you could use blockchain technology to allow these new models of governance—we call that crypto equity. That's where the Swarm name comes from; swarm intelligence is collective intelligence that comes from decentralized networks, and where everyone participates. [You] see the wisdom of the crowd.
[The] vision [was] to allow people to set up their projects using this new model. Initially, we had the technology, and we knew what the technology could do. There were these gaps of, "Well, how does this fit into the existing world?" [We're] working through those.
When did you start using the term "distributed collaborative organization"? At what point did you start thinking of this as a discrete model?
We started using that term at the Harvard/MIT conference [January 15-18, 2015]. It came out of that, and the fact that there were a few of us collaborating to make it happen.
Tell me how you define DCO.
It's a type of organization that allows a much broader range of collective ownership [than you] get in any other structure. It's a little bit like an LLC or a C Corp, in that it has a legal template: "Here's what it is within the context of existing law." But it's actually much easier to set up because all of the binding aspects of [the DCO] are done through the blockchain instead of the existing legal system.
It's an organization that costs you—maybe [it's] free to set up, and then it takes a dollar or two [for] the registration form, instead of $500 or whatever it costs [to form] your own C Corp. Setting up a nonprofit, ironically, is even more expensive. It's a very tedious process to set up any kind of corporate structure in the US.
And it could be way easier. With this technology, we can do it for literally under a dollar.
What's "collaborative" about DCOs? How do they differ from other organizations built on blockchain networks?
[For one thing,] no one has built this tie-in to the human world—and the existing legal world—to say exactly where this stuff fits in. The DCO model [inhabits] a clear place in the existing legal world, and [holds] a clear place for human leadership.
[With] a lot of organizations in the blockchain world, it's like, "Here's your token. You don't have any rights, so don't expect anything like that." We've gone in the opposite direction and said, "Look, you're engaging in this, buying ownership in this project. Here are all your rights that are attached to this token, and here's how the governance of this organization will work." [We're] being very explicit, and deliberately including the human element.
The Harvard/MIT summit took place fairly recently. But do you see evidence of this idea spreading?
We've seen a lot of people start to get this pretty recently. We did another event, at Stanford [in March], [where] we set the model template. The first [event] was more conceptual; the second was more concrete: What is the model structure for something like this? That was only a few weeks ago.
We didn't start launching them until [after the Stanford event], but we had, in the first week, 15 or 20 of these organizations at once. We've got a lot of people saying, "Yeah, we want to experiment with this model." Part of [what's] great about it is [that you can take it] into a lot of areas that you'd ideally have some governance around, but would be too high-cost to set up with the infrastructure that's available now.
For example, a Facebook group or Google group or something like that: Who's in charge? You have admins and superadmins; how do you decide how to approve or not approve someone? It's a very easy way to set up something like that—the big governance structure for something.
I'd love to hear about a couple of the groups that have sprung up.
It's a great structure for accountability. One cool [example] is the College Cryptocurrency Network. They have chapters around the world, [at] different universities—I think [there are] 50 to 100 [chapters] in the US. There's no way you set up a company for each chapter. It doesn't make any sense. [A] nonprofit doesn't make sense, [either], just [in terms of] the cost.
So you start a DCO for each chapter, and—say you're looking for sponsorship funding—that DCO is what governs the local chapter's disbursement of funds. Someone can say, "Okay, we want to sponsor pizza for the College Cryptocurrency Network," and then that can be done in a way that has more accountability than now. You can even have [the money] automatically disbursed.
Because [everything] is done with the blockchain, people individually can have these—it's hard to describe. I don't know if you know emergent intelligence, but instead of having a top-down structure for your network, which has costs—and we're not going to set up something that has, really, [just] one chapter—now you have all [these autonomous] chapters. Then they send delegates, and choose: What does this top-level organization look like?
It ends up being way, way more democratic, structurally, than your traditional nonprofit model.
Co-working spaces are another clear [example], where the people who are always there, and contributing, and participating, want to be the ones with the central ownership.
Do you anticipate any obstacles as more people become interested and try to launch DCOs? Has it been pretty positive so far?
I think it's been very positive so far. [Like] anything that's fairly new, there are going to be kinks. I encourage people to do things in an experimental way, and say, "This is the future, but it hasn't fully arrived yet."
Someone who has a nonprofit that's already working well—I wouldn't just replace it with this. You could set up [a DCO] alongside of it, and I think realistically, in two years or something, [you might] say, "Look, we don't need [the] nonprofit at all anymore."
If you're going to start from scratch, forget about setting up a 5013c, because there's too much cost associated with it. Just launch your [organization] on the blockchain, [where] all the things you need to do, governance-wise and everything else, [can] be done much [more easily].
That's true even for nonprofits, which have a lot of stakeholders through their donor bases. It's also true [for] pretty much everything that's in the peer-to-peer service industry, because you have a lot of different people you're engaging with. If you use a standard corporation with something like this, you don't have any way of incentivizing the people who are providing the most value in your network.
Where do you see the DCO model going? What do you hope to see happen?
[In part], just because I think it's the morally right thing to do, I want people to engage and reward the people who provided the most value, and participated. I see that as a really desirable state of affairs.
I think it will happen. I think this is the natural evolution of peer-to-peer networks and currencies—to have decentralized governments that are fully participatory. And it really lowers the cost of doing something like this as well.
Is there anything else you want to talk about?
Generally speaking, I am curious about what people see within their own framework—where they'd like to have more participation or some kind of formalized layer along these lines, that fits in with what people are already doing.
I'm curious, from your standpoint as someone who covers this industry, where [you] think a structure that collectively incentivizes something would be useful.
I think that there's a lot of potential for freelancers like me to network both for financial benefits—in terms of stopping the race to the bottom—and for other benefits, like the opportunity to learn from one another.
I know this is already happening with co-working spaces and some freelancers' cooperatives. I recently wrote about Enspiral, in New Zealand. They're trying to develop a totally flat, democratic governance structure. It's an exciting example of people who work for themselves coming together.
What you brought up [about freelancers]—that's a good point. I feel like it's the future of work, in general. We need these kinds of systems in place to incentivize people. That's the whole point of equity. It's not just the current value, it's value that's accrued in the course of something. We need a more fluid version of that to match our work habits, and I think we're providing that.
We're fully automating the creation process. You can create your own DCO, and see how it goes for you.
The DCO model offers a powerful alternatives to conventional corporations and nonprofits. (Courtesy Joel Dietz)
- Pete Rizzo, "When is a Token a Security? Research Analyzes Blockchain Under US Law," Coindesk, 10 February 2015
- Swarm, "The Second Wave of Blockchain Innovation," Medium, 24 December 2014
- Rob Price, "The 25 Most Exciting Bitcoin Startups," Business Insider, 23 March 2015
- "Distributed Governance" on Bithub