Will Blockchain/Crypto End of Traditional Firms?

From Nick Tomaino’s post The Slow Death of the Firm:

Economists typically suggest that firms exist for two main reasons: to minimize transaction costs and to aggregate capital and people.

Firms have played an important role in society for decades for these reasons (and likely a variety of others). Despite their prominence, most people dislike them.

He goes on to state that BitCoin is the first organization benefitting from both traditional firm characteristics as well as new characteristics made possible by blockchain:

Bitcoin is the first example of an organizational structure that has the beneficial characteristics of the firm (minimizing transaction costs, aggregating capital and mindshare, and providing job security for contributors) combined with some new characteristics:

  • Ownership isn’t controlled by an exclusive group of founders, employees, and investors
  • Data isn’t controlled by any one entity
  • Decision making power is not controlled by one person or group and there are checks and balances from a broad variety of market participants

These new characteristics may help billions of people around the world in the future, apparently by sidestepping law:

Blockchain-based organizations that aren’t bound to a physical location offer new earning opportunities to billions, as the elimination of a legal entity reduces the need for legal contracts and friction and opens up new short-term, global labor opportunities

While I agree that Bitcoin cannot be entirely regulated by laws, I’m not yet convinced that this extends to the earnings of billions of people around the world. Anonymity is a possibility, though he cites 21.co as an example, which requires Facebook authentication.

One of the biggest changes from a traditional firm is that users can become owners, which he touches on, and that:

Creating new products that weren’t possible with firms

More than merely creating “blockchain for X” projects, there’s entirely new possibilities. Blockchain technology and cryptoeconomics are more like adding a new dimension than changing the playing field compared to traditional firms.

Before we get to that point, Tomaino belives there will be steps in that direction along the way.

some centralization of decision making is generally necessary in the early days of a project. The best projects will likely be designed to be decentralized across all facets of the org for the long-term, but not necessarily right from the beginning.

Most labor still requires some centralized human judgement to effectively allocate resources. There are some interesting efforts in the works around proof-of-stake and other systems that may enable the decentralization of resource allocation across a wide variety of labor types in the future.

In the end, he believes the changes will come on two levels:

  • New decentralized organizations will emerge.
  • Traditional firms will transition to decentralized organizations.


Leave a Reply

Your email address will not be published. Required fields are marked *