An Autonomous, Software-Based Venture Capital Fund Just Raised $163 Million. It's the Largest Crowdfunding Campaign in History.

Technology stays one step ahead of government.

Welcome to the strange (and exciting) new world of blockchain-based finance: A so-called Decentralized Autonomous Organization (DAO) has raised $163 million so far, making it the largest crowdfunding campaign in history by a wide margin.

The DAO is a venture capital fund for startups. Investors in the DAO receive tokens that give them voting rights over how the money will be dispersed. But there's no legal staff or management team providing oversight; the project will be carried out through code.

This is possible thanks to two breakthroughs in computer science introduced with Bitcoin. First is programmable money. In the case of the DAO, the cryptocurrency "ether," which has similar properties to Bitcoin, can be set to transfer automatically between parties based on an algorithm. For example, if enough shareholders in the DAO vote to invest in a startup, the funds transfer automatically to the startup. The precise conditions can be stipulated in code instead of a written contract. No lawyers or bankers required.

The second breakthrough is the concept of the blockchain, which is a shared file that lives simultaneously on computers all over the world and is constantly updated. So investors in the DAO don't have to trust any single person or company to maintain—and not tamper with—the underlying software that controls their money. Duplicate copies of the DAO's code exist all over the world. (The DAO lives on the Ethereum blockchain, which is similar to Bitcoin but designed to host more sophisticated programs.)

It's noteworthy that the DAO raised all this money during the very same week that new rules took effect legalizing so-called equity crowdfunding, in which small investors can kick in investments of under $2,000 and still get a piece of the company.

This was a longtime coming. Equity crowdfunding was part of the 2012 U.S. Jobs Act, but it took government lawyers four years to figure out how to regulate it. Along the way, the Securities and Exchange Commission produced a 585-page document on the subject.

The DAO gives us equity crowdfunding without the rules, bureaucracy, or the government's stamp of approval. So is it legal? That's not entirely clear, but there also may be no way for federal regulators to stop it.

For more on that topic, watch my recent story on Brooklyn-based Consensys, which is the leading developer of applications on the Ethereum blockchain.

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