Cryptocurrencies

Can a Bot Run a Company?

The DAO is an ambitious project that's already amassed an incredible amount of funding. A lot could go wrong, but it could be revolutionary if it goes right.

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@DAOhubORG/Twitter

Can a bot run a company? A hot new tech venture that wants to run entirely by code thinks so. It's called "The DAO"—short for Decentralized Autonomous Organization—and it aims to run as a for-profit corporate body that will obviate the need for human beings to make business decisions. That is, provided that the human beings behind The DAO can set it up right.

While this leaderless digital profit-maximization machine may sound more like a clever science fiction plot device than a serious investment vehicle, The DAO has raised over $150 million worth of funding on the Ethereum platform since it first launched a mere month ago. For context, this blew the $116 million record for cryptocurrency-business financing raised by Silicon Valley darling 21 Inc. out of the water. An eyebrow-raising start to be sure, but The DAO faces a long and bumpy road to the world of ubiquitous, autonomous digital organizations that its founders envision.

Disrupting Investing

The DAO presents itself as part venture capital fund, part crowdfunding platform, and part super-cool engine of democratic capitalism for tomorrow. It seeks to raise investment into the platform by selling digital "DAO tokens" in exchange for ether (ETH), the cryptocurrency of the distributed computing platform Ethereum on which The DAO is built. The DAO, which defines itself as "the sum of those holding the DAO's representative tokens," will then invest these funds into promising projects that will hopefully yield big returns for token holders. 

Where The DAO differs from traditional venture-capital firms is in its management structure. Like the similar BitShares project that preceded this effort, there are no executives or middle managers to call shots and guide activity. As its website proudly informs: "THE DAO IS CODE." Or maybe code plus consensus, but more on that in a moment. Purchasing a DAO token is a bit like entering into a new kind of business arrangement where you bind yourself to the financial outcomes of a crowd-influenced, pre-programmed directive. 

Integral to this are "smart contracts." First conceived by the cryptographic legal theorist Nick Szabo two decades ago, a smart contract is a computer protocol that digitally enforces terms in way that is self-executing or self-enforcing. Relying on an established court of law to adjudicate contracts can be messy and costly. Digitization provides us an opportunity to secure agreements in a way that makes it expensive or even impossible to breach contractual terms—no taxing trips to the justice of the peace required! Smart contracts can largely enforce themselves.

Vending machines are a kind of proto-smart contract. You insert the right amount of money into the machine, select your choice of snack or beverage, and the machine spits out your tasty treat. You did not need to engage with a physical human to munch on those Peanut M&M's since the parameters of each transaction are prefigured into the mechanics of the machine: It can tell how many of each kind of snack can be sold, and at what price. It's a cheap and low-risk way to do business.

Smart contracts work similarly, but instead of physical currency and mechanical verification, cryptocurrency and digital consensus combine to execute conditional agreements. Parties can create a digital contract that is coded to perform certain functions in response to specific inputs. Futures contracts can self-execute when a market feed shows that a price moves in a particular way. Rental cars can unlock themselves for use upon receiving the right cryptocurrency payment. And, in the ambitious case of The DAO, investment firms can theoretically automate core business operations.

The Humans Behind the Bots

So, if The DAO is "run by robots," how do decisions get made? By humans, actually. Humans decide what terms to select, and the code executes. Here's how it is supposed to work

There are three kinds of parties in The DAO: contractors, curators and token-holders. Contractors are teams who propose projects to be funded by The DAO. These are the "investees" that will actually build the goods or services that receive funding. Not just anyone can be a contractor. They must first be pre-approved by one of a handful of "curators" that largely consist of the Ethereum development and support team

Then there's the token-holders: regular old Joes who pick which pre-approved projects to fund. They vote with their DAO tokens—the more DAO you have, the more your vote counts. If a contractor's proposal receives majority approval with a participation rate of at least 20 percent of token-holders, The DAO will automatically execute that investment and distribute profits as programmed. At least, this is the plan.

Slock.it is one of the first technology projects to put The DAO's plans into practice. The company hopes to build a peer-to-peer smart contract infrastructure for physical properties—kind of like a "Smart Contracted Internet of Things." It also developed much of the infrastructure at the core The DAO.

The Slock.it team put forth their investment proposal to The DAO community to be vetted and voted. The DAO community liked it. The proposal reached the minimum approval threshold and was greenlighted for sale on The DAO. If all goes well, Slock.it will be able to build a profitable product with the money raised through The DAO, and DAO token holders will enjoy revenue streams from the product for years to come. DAO tokens appreciate, ETH appreciates, and more innovations are introduced to the world.

The folks at Slock.it are so serious about distributed technologies that they are willing to fund their venture through a heretofore unproven, autonomous, decentralized corporation that will retain rights in their product. This requires considerable trust in the platform. As Slock.it CTO Cristoph Jentzsch and DAO White Paper author told CoinDesk, "We don't actually know who started [The DAO]. Of course we can see the address on the blockchain but we don't know who owns the address. The only way to speak to The DAO is to make a proposal and vote." 

Digital Democratization 

There are hundreds of millions of dollars worth of ETH tied into these hopes for The DAO. But why? Established crowdfunding and venture capital organizations seem to do well enough. Sure, you need to trust that the old centralized platforms don't unduly censor projects or abscond with your money. But what of the alternative? This kind of corporate arrangement is untried and potentially quite vulnerable to unknown attack or programming errors. It is almost certainly illegal in many places throughout the world. And who in their right mind would entrust their personal capital in a loosely-defined autonomous system with no known creator?

The New York Times found one such intrepid soul to highlight in its weekend feature on the project. The "31-year-old French socialist with an appetite for risk" that invested in The DAO is excited about profit opportunities as well as the prospect of disrupting money management. And he's bullish on experimentation for experimentation's sake as well: "It's important for people to propose and try an alternative," he said. 

blog.daohub.org

Seth Bannon of TechCrunch gushed that with The DAO, "a new paradigm of economic cooperation is underway—a digital democratization of business." He envisions a world where not only "the privileged" but anyone with access to the internet and a working knowledge of the Ethereum platform can found and fund promising new ventures.

Noln Bauerle of Bordless Blockchain writes at CoinDesk that The DAO should be thought of as a "new Dow," but unlike the legacy stock market index, it will be owned and controlled primarily for the benefit of market participants.

And about that latent robophobia? The Ethereum website cheerily suggests that "one of the many advantages of having a robot run your organization is that it is immune to any outside influence." Of course, this can sometimes be a disadvantage as well.

DAO or DOA?

Not everyone is wowed by The DAO. Even the more innovation-minded among us may understandably balk at the prospect of investing serious money in a proudly leaderless corporation operating purely via experimental code in dubious legal circumstances.

There have already been missteps: Miscommunication over the start date of the Slock.it sale lead to controversy and tension, resulting in a terse reprisal from CTO Cristoph Jentzsch that "The DAO will instantiate when it damn well pleases… Welcome to true decentralization, middlemen not welcome." (The press coverage inspired even less confidence, replete with a disclaimer that the author could not guarantee whether any of the story's facts and statements were accurate or legitimate.) "Leaderlessness" may yet prove to be a bigger challenge than first anticipated.

But even if a lack of leaders proves surmountable, there remains the question of investor quality. Daniel Larimer was the founder and chief developer of BitShares, an earlier, similar project that ultimately failed. He recently wrote an intriguing blog post comparing his project to The DAO and predicting what challenges this newcomer will face. He was quite blunt: "Smart contracts cannot fix dumb people."

If you put garbage in, you'll get garbage out, no matter how fancy the distributed mechanism that processes it all. The DAO could be quite good at eliminating the core problem it set out to solve: the corrupt administrator. But it does nothing to improve the economic and political problems that plague any such venture, and in fact could actually make them worse.

The biggest uncertainty, however, is the legal status of such an undertaking. Depending on an investor's national jurisdiction, participating in this leaderless stock market could run one far afoul of established securities regulations.

For their part, The DAO's top facilitators (don't call them leaders!) believe that the platform is set up in such a way that they bear no legal responsibility for the project's outcomes. But this defense has not saved others operating cryptocurrency projects in legal grey-areas in the past. Successfully integrating into existing legal systems will require lots of patient outreach to policymakers and judges until the appropriate norms are developed. This is quite difficult, but not impossible.

In the meantime, the Slock.it team is seeking to program around regulations with a project called DAO.LINK. While still in development, DAO.LINK is described as a "bridge between and brick-and-mortal companies" that will allow firms to harmonize their DAO operations with their municipalities' regulations. Leaderlessness, it seems, requires a much more complex digital infrastructure than one might anticipate. 

The DAO is an ambitious project that has already amassed an almost incredible amount of funds in short order. A lot can go wrong, but in the event that things do go right with this maiden robocorp, the implications of a world occupied by autonomous digital corporations will be interesting indeed. 

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58 responses to “Can a Bot Run a Company?

  1. Vending machines are a kind of proto-smart contract. You insert the right amount of money into the machine, select your choice of snack or beverage, and the machine spits out your tasty treat

    LIES! I stopped using vending machines because of the number of times one ate my money and failed to give anything. It is not self-enforcing because the machine is not held to account and you have to go out of your way to recover your lost $1.25

    1. If you intend to apply this to larger scale transactions, what’s the adjudication process for when the code or machine breaks? Or when bugs crop up? When it’s not $1.25 but $125 or $125,000*?

      *or the equivalent on whatever currency is being used.

      1. The engineers behind these projects put their fingers in their ears and sing really loudly when questions like this come up. There is a nonzero risk that somebody will not catch a misplaced decimal place somewhere deep in the code resulting in an enormous unrecoverable loss in some unforeseen edge case.

        Smart contracts should only be used to run elevators.

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    3. Feature, not a bug. Not knowing what your reward will be is what makes gambling addictive.

  2. Good luck with that.

  3. For math nerds: http://www.movies-net.com/the-…..thms/22846

    Pretty good documentary on algorithms on Netflix.

    1. That’s on my list of things to watch.

      1. The host also did another on the history of Maths. It’s more historical than mathematical, but still interesting.

        1. Why do people think it’s cool to use the britishism of pluralizing math? mathematics is a singular concept, not a plurality. Also britain is bad, britons aren’t even people, and you are bad by association.

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          1. It’s what the documentary is called. It’s done by the BBC.

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  4. Can a Bot Run a Company?

    Well, i know one can make $27298 in the last month working for Google…

    1. That bot wasn’t paid shit. It was the bot’s aunt’s roomate’s half sister.

      1. You obviously didn’t see the bank draft, or the new Renault that the bot just bourt.

          1. They just get divorced there.

  5. Can a Bot Run a Company?

    I don’t know. But apparently many companies are run by bot *flies*.

    1. Protip: do NOT Google image search for “bot fly.”

  6. Take over succesful business. Give self golden parachute. Slash all reinvestment and cut jobs by 10% a year for 5 years. This increases short term profits. Give self $150M bonus for increasing profits . Quit before conpany implodes. Rinse. Repeat.

    1. So I wasn’t the only one who extended the headline to read “Can a bot run a company into the ground?”

    2. Even better, I hope they instill something akin to Asimov’s laws into this things ‘business’ subroutines so that it’s first order of business acquisition isn’t to simply kill the other corporation. That, and morality is utterly removed from the equation but on the plus side it’s probable that only an AI could actually follow all the laws that no doubt would paralyze such a creature into utter inaction.

    1. All the Terminators are assigned to the Accounts Receivable collections department.

      1. Don’t be silly. Dead customers can’t pay their bills.

        1. Their estate can if you file a claim against it.

  7. ROLL THAT BEAUTIFUL BEAN FOOTAGE!

    1. Sometiems you have to just roll with it.

  8. Can a bot run a government agency

    http://hotair.com/archives/201…..-position/

  9. This isnt nearly as exciting as I was hoping. When are we going to get the dystopian future we deserve?

  10. Do CEOBots dream of electric balance sheets?

    1. Do CEOBots dream of electric income statements

      Fixed. The primary utility of the balance sheet is to verify accuracy of the presentation of a company’s current assets and liabilities. CEOs are far more interested in stating whatever program they started last quarter has boosted profits by some amount. CFOs are the ones who worry about the balance sheet.

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  12. I’m thinking the only

    hot new tech venture

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  13. Wasn’t this in Idiocracy? And the robot CEO laid off half of Brawndo corporation.

  14. Vending machines are a kind of proto-smart contract. You insert the right amount of money into the machine, select your choice of snack or beverage, and the machine spits out your tasty treat.

    No way!

    Smart contracts work like similarly, but instead of physical currency and mechanical verification, cryptocurrency and digital consensus combine to execute conditional agreements.

    “Thank you for signing in into your indentured servitude contract with us! Here’s your token. Now, please accompany the press gang that is on its way to your location to start your new adventure!”
    “Wait… WHAT??”

    That is one smart contract.

    1. I’m not sure I want a “consensus” involving non-parties to set the terms of my deal.

      1. And yet you intend to vote.

        1. Actually, this is the first Presidential election that I don’t intend to vote. I haven’t voted since the last one.

    2. You pay McDonald’s and hookers before service.

  15. Deep Blue can beat Anatoly Karpov in a game of chess, from time to time, but I doubt it could calculate California’s retail sales tax.

    1. Well, Deep Blue was disassembled, and it was Kasparov, and computers still can’t play chess, but other than that…

  16. So… when you say you have a “bot” that can “run a company”, what you really mean to say is that a 20% vote among people “runs the company”.

    1. Seems like the hoverboard. This is just branding and not the actual thing it’s claiming to be.

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  18. What could possibly go wrong?

  19. What if the bot decides to buy Boston Dynamics from Google and invest in an army of killer robots, then starts conquering countries to optimize its supply chain?

  20. Man. I really can’t tell if this an incredibly powerful new-ish idea, or 100% horse shit.

  21. Yeah, “smart contracts” overseen and enforced by algorithms. Sound a lot like how PayPal and Ebay flag accounts due to “suspicious activity” and then the burden is placed on the user to prove he or she is engaged in legitimate business and not in violation of the terms of service agreement.

    Often it is only when you get to communicate with an actual human being and threaten to sue that things get resolved in your favor or at least with a modicum of fairness.

    In any case, most contracts between people are executed without much difficulty if both parties act in good faith, contract law and courts exist for those situations in which a dispute can not easily be resolved by simply abiding by the contract. The whole notion of a “smart contract” existing in anything other than highly lopsided agreements or simple vending machine like situations shows the profound ignorance of techies regarding law and the court system. By all means, lets reform and streamline the system, but lets stop with the techno-utopian fantasies.

    If AI systems and bots really can coordinate human activity the way some of these techies claim or hope for, then who is to say a functioning command economy is not possible? Are we willing to suspend your disbelief in centralized control just because the would be controllers dress like cool hipsters and not Che Guevara?

    1. Yeah, the “smart contract” lacked any real sense of what makes it special or different that I really have very little faith that its anything really special at all: all its doing is automating checks to see if people comply. And possibly having a design philosphy that complicated things should be avoided.

      Which is nothing new or particularly innovative, from my understanding.

      This really does sound like a scam, though a rather effective one.

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  23. This is a bunch of bull. The “bot” doesn’t run a company. It “runs” this little tiny sliver of a company. Really it’s just a program, why call it a bot? Because it’s catchier that way.

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