On-chain Organizations

Are on-chain organizations the future?

An organization is a group of people who operate on a set of agreed upon rules. In our current legal system, if someone breaks those rules, we look to the state and its apparatus (courts, police) to enforce these contracts. But what if it was simply impossible to break the rules in the first place? In the future, more organizations will choose to be on-chain since blockchains allow us to set rules and make it impossible to break them. Perhaps corporate implosions like Enron or FTX could have been prevented if these companies were on-chain organization where the nature and location of the assets were more transparent and funny business was impossible by design.

When it comes to forming and maintaining an organization throughout its lifecycle, a blockchain ledger is more practical than the current system of expensive paperwork maintained by lawyers. On a blockchain, it's simple and cheap to create an organization, fund it, and specify how decisions are made as opposed to waiting a week for incorporation and another for a bank account while relying on courts to enforce agreements. The lifecycle of a traditional organization is managed by lawyers -- expensive ones -- and bankers, who collect a toll at every step. For example, raising an early stage round of funding for a startup can cost $25,000 in legal fees to issue new shares. On a blockchain, it can be done with smart contracts in seconds for less than $10 in transaction fees. Former Coinbase CTO Balaji Srinivasan proposed representing an organization's ownership on the blockchain using Mirrortables, a blockchain-based capitalization table that syncs with the legacy legal system for compatibly.

On-chain organizations have limitations, and they fall short when it comes to real-world assets. To enforce property ownership in the real world, a state-recognized system of incorporation is necessary since we depend on the state to use its "monopoly on violence" to intervene, for example removing someone who is squatting on a property. When it comes to allocating digital money and assets, however, blockchain-powered organizations shine. If designed with the correct incentive structures and protections, they shift the model from "don't be evil" to "can't be evil". In sum, the organizations of the future and their assets will be represented on blockchains, allowing us to coordinate resources more quickly, securely, and transparently.

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