The Dawn of Cryptoequity -- Bitcoin Magazine
In my first article for Bitcoin Magazine, "John Law Gambles with Bitcoin," I noted the remarkable similarity between yesteryear's birth of the stock market and the dynamics around the emergence of Bitcoin. Today, I am happy to announce that we have launched Swarm, a platform for cryptoequity that can eventually replace today's stock markets with a much more powerful alternative.
To do so, we are fundraising on our own platform. Our coin, the SwarmCoin, entitles all coin owners to a part of one percent of all future coins launched on our platform. It also allows coin holders to vote on a community representative. This representative will have control over one of the the signatures on the multisig wallet and will be responsible for making sure that we spend incoming funds in a responsible way.
This means that crypto crowdfunding is finally emerging. With the advent of decentralized exchanges, a distributed and trustless asset-issuing mechanism is no longer a dream. It is equally possible to entirely replace classic stock offerings with cryptoequity. Like Bitcoin itself, this has the advantage of massively lowering barriers to entry and immediately providing global liquidity.
To a certain extent this has already been done within the context of "2.0" projects like Mastercoin, Counterparty, Bitshares, Maidsafe, and Ethereum. People received "founder shares" of the initial asset pool, and the price of the individual coin roughly tracks the perceived success of the project (although perception may be as much about marketing as execution). This means that success is also distributed among the people who participated in the fundraiser.
Despite the relative success of these models, there have been some major shortcomings. One is that the legal status of many of these remains uncertain. This is partially because of regulatory uncertainty, partially because these projects were designed from the beginning with the idea of what the founding team wanted to do, rather than what the law allowed. This means that they were certain to hit regulatory hurdles as they attempted to convince regulators that what they were doing was not an "IPO," even while they were attempting such.
A potentially even larger issue is with accountability. Traditional companies that raise capital maintain a distinction between investors and founders, with investors taking an increasing share of decision making power the more capital they put in. This is usually performed via seats on a board that has the power to decide the high level positions of the company and make major decisions regarding capital usage. This often means that if founders are not living up to their stated goals, or the goals that investors expect them to have (like growing the company at a certain rate), they can be replaced by the board.
A similar problem exists with respect to long-term incentivization. In traditional companies, founders receive shares that they cannot trade. This forces them to wait until a liquidity event (i.e. an IPO) that gives them a return on their investment. This, and the fact that funding usually comes in multiple stages, forces them to work for the long-term success of their product. Despite the amazing liquidity of Bitcoin, right now incentivization in the cryptocurrency world is unduly focused on specific near term events.
The Swarm model is designed to provide all of the advantages of crypto crowdfunding without any of the above problems. First, Swarm was designed only after extensive legal research, with the plan to be fully compliant with existing legal frameworks concerning securities offerings. Although our research has not been exhaustive across all legal jurisdictions, we decided our own model only after seeing what was clear from a regulatory perspective. Among other things, we decided to not to include a pre-mine or issue any "founder shares." Founders are forced to buy in just like ordinary users.
Another important decision was to add an explicit accountability mechanism in the form of a community representative. This reflects my belief, first documented in Distributed Governance Whitepaper, that current accountability mechanisms are not entirely working. It also sets us up to be one of the first organizations that lives up to the potential of a Decentralized Autonomous Organization, or DAO. For us, this means not only that you can see the outgoing spending, but you can also have direct input into where it goes.
This idea of accountability also extends to coin creation. A core part of our vision is not only making "create your own coin" fundraisers much easier, but also offering decentralized due diligence. This means that we will be engaging with teams of people (potentially including yourself) who can review coin offerings to filter out scam coins and promote legitimate offerings tied to products of real value.
One tremendous benefit of using our platform to launch your coin is that you get a large number of users to start off. Because you are distributing a part of your coin among our network, each member of the Swarm will be incentivized to promote your project and help it grow rapidly. This leads to more engaged and happier user who directly share in the upside of these projects.
Swarm represents the emergent intelligence that arises from decentralized networks. Part of the goal of the founders of the American Republic was to keep things as decentralized and dynamic as possible. At some point this turned into a strange melting pot of politicians, treasury secretaries, i-bankers and a central bank that are virtually indistinguishable from each other, all bearing a striking similarity to fool's gold.
Swarm is a re-iteration of the vision of independent autonomous individuals who form structures because they can. We are committed not only to launching coins and cryptoequity, we are committed to reforging the aspects of society that have failed to evolve in the latter half of the twentieth century.
One such organization is the corporation. A strange entity, the corporation emerged in the 1920s as a legal entity equivalent to a human. Whereas previously people went bankruptcy and even jail when a company failed, this separation allowed companies to fail without ruining all of the people who ran them. This allowed people to take greater risks and thus produced greater innovation.
The birth of venture capital and the semiconductor industry followed a similar dynamic pattern. A dynamic Frenchman known as the "general" wandered off to Silicon Valley because he was bored of the stodgy and risk-adverse behavior of Wall St., inventing a new corporate form and using it to invest in Digital Equipment Corporation. This first blend of well-made suits and flannel shirts was responsible for the birth of much of the computer industry.
One feature that lead to special dynamism is that the partners who made the deals were directly incentivized by shares in the companies they lead deals for. Big government eventually regulated away that feature, and venture capital was forced to work upscale, often merely by creating an opportunity for the rich to become richer by sitting on their money.
Like the birth of computers or the internet, blockchain technology allows a mindblowing evolution in the nature of the corporation. As we've documented here via the EtherCasts channel, there are amazing new possibilities associated with Decentralized Autonomous Organizations. Although the technology that makes this possible is not fully developed, we are committed to pushing this aspect of technological development forward and implementing it once it is available.
Crowdfunding has been attempting to recover lost territory and create a similar dynamism. But it has been handicapped by several aspects. One, is that, in the United States, crowd equity funding to non-accredited investors remains illegal. This of course privileges the establishment. We expect this to change with the implementation of the JOBS act, a phenomenal initiative that, like many governmental initiatives, is slow going.
We are starting with the things that are actionable now, as outlined in our cryptoequity whitepaper ( ), including Kickstarter-like campaigns. We are bringing this to a wider audience, because we believe that the appeal of a platform like this is far broader than simply Bitcoin, it is all of the advanced functionality that is simply better and more dynamic in a decentralized context.
What we are offering is a rebirth of capital for the people by the people based on the emergent intelligence found in decentralized networks. Swarm is something more than a new, better method of crowdfunding (although it is that), Swarm is laying the seeds for a whole new form of governance that returns power to the people and allows for dynamic evolution from the bottom up.
Join our fundraiser and participate in the future of capital evolution.
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Joel Dietz writes for P2P Foundation and OuiShare, runs EtherCasts, co-organizes the Silicon Valley Ethereum meetup, and