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.

Bonus article: Augur May Become the Greatest Gambling Platform in History. Is There Anything the Government Can Do to Stop It?

Bonus video: Want to Buy Stock in Your Corner Bistro? The Government Opens Venture Capital Markets to the Masses

Comments

[Adans smith]

Ha,sounds like the Nigerian prince writ large.Sorry,but,I'm not convinced.Pouring money over Al Gore's tubes to fund anyone is stupid, I would never send money to a 'crowd '.

[Francisco d'Anconia]

Life finds a way.

[darius404]

"So is it legal? That's not entirely clear, but there also may be no way for federal regulators to stop it."

That's BETTER than being legal.

[OneOut]

These types of breakthroughs and inovation must be giving the control freaks who have gravitated to government the absolute night sweats.

How can they possibly maintain control over Hoi poi with this kind of power in the hands of non government employees ?

Hahahahaha. I'm loving it.

[LynchPin1477]

It's so...so...UNREGULATED!

/tries to run away, curls up in a ball instead

[OneOut]

Someone must protect the people who are willing to invest a portion of their assets to such a risky venture from themselves.

It is I, Government Employee Man, to the rescue !!!

It is my destiny to save them from themselves.!!!

Let's regulate this , even though we don't know how to !

[Francisco d'Anconia]

Sad that we've gotten to the point that anything unregulated is likely illegal.

[LynchPin1477]

Anything not regulated by the government is unregulated, and anything unregulated is dangerous, and anything that's dangerous should probably be illegal, so the only question is why you seem so comfortable with the exploitation of minorities by corporations? I think we all know the answer.

[Hyperion]

Yeah, but it's for the children.

[LynchPin1477]

The hating the minorities part?

[commodious spittoon]

This is exactly why government needs to take the equity out of raising children.

/MHP

[Eman]

but you're trying. that's heroic, right?

[Craig Smith]

...yes? I'm so confused right now...

[Ken Shultz]

Someone should set up a contrarian fund, with an autonomous algorithm that just does the opposite of whatever the majority decides to fund. Yeah, I know, they're goin' after off market startups, so that's tricky.

Better yet, if they set up something like this for short traders on the market, I'd like to write an algorithm that automatically sells that fund covered calls on the fly.

[AlmightyJB]

Nick Menza is dead after collapsing on stage.

http://www.foxnews.com/enterta.....-dies.html

[Hyperion]

The problem with these musicians dying like this is that they want to continue partying into their 50s and 60s, like they did in their 20s and run around on tours like this. Their bodies just can't take it and it eventually kills them.

[Francisco d'Anconia]

Um...

[Hyperion]

Pretty sure that granpa methusela there cleaned up his act a while back. Either that or he's a zombie, like Hillary.

[Francisco d'Anconia]

He may, in fact, be the walking dead.

[Hyperion]

Good name for the Stone's next album.

[LarryA]

I trust you aren't talking about Jane Little, the Atlanta Symphony bassist who collapsed on stage last Sunday, having played for 71 years. She was 87, and they were playing "There's No Business Like Show Business."

http://www.washingtonpost.com/news/mo.....erforming/

[pan fried wylie]

The precise conditions can be stipulated in code instead of a written contract. No lawyers or bankers required.

I'd like to receive all my contracts translated into C from now on.

[LynchPin1477]

With a python wrapper to make it easier for non-lawyers non-programmers to understand.

[Jerry on the rocks]

You do have to make sure your functions don't return void.

[Jerryskids]

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

Isn't this the sort of micro-investing we're encouraged to do for humanitarian reasons in third-world countries where their economies and financial systems and government are so fucked up regular people have no chance at all at engaging in entrepreneurial capitalism? Are we really in a position where we need third-world countries to teach us how modern society is supposed to work?

[LarryA]

Yes.

[True Scotsman]

Who should I vote for San Diego County Board of Education 5th District?

[Sombody]

I'm deciding 4th district

[Sombody]

not really

[DenverJ]

Hitler

[pan fried wylie]

also, Skynet.

[bassjoe]

The DAO lives on the Ethereum blockchain, which is similar to Bitcoin but designed to host more sophisticated programs.

Sigh. They're not anything alike. Ethereum has something it calls the "blockchain", like Bitcoin, but that's where the similarities begin and end.

[bassjoe]

The precise conditions can be stipulated in code instead of a written contract. No lawyers or bankers required.

The day one of these DAOs lose a substantial amount of money due to fraud or negligence, I'd like you to come back to this line and edit it, please.

[bassjoe]

Jesus Christ, there is so much fucking naive or just plain wrong with this article.

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.

Yeah, maybe the feds can't pressure the actual DAO since it's just a mindless piece of code. They can sure as hell pressure the people who maintain the code for the DAO -- and it will need to be maintained by actual human beings. They can also pressure the miners that make the Ethereum blockchain able the function at all. They can also pressure the Ethereum developers.

[techgump]

It's not just the code that decentralized. It's also the programmers. I wish the Feds good luck enforcing their rules on an anonymous Chinese (insert any country here) people. The rules are changing.