Programmable Legal Entities
The Next Big Thing
Technologies amplify in the process of evolution. Evolution is a blind, directionless propagation of new features and capabilities, with no benchmarks to measure efficiency increase, with most of branches being dead ends, and with only one definite vector that leads towards more complexity.
The futurology masterpiece Summa Technologiae by Stanisław Lem contains bright evidence of the technology’s close resemblance with the biological evolution, supported by a variety of predictions that have already been realized in the time since the publication of the book 55 years ago. Sometimes, an entire industry would take a long-term track sideways and return to the old hearth at a new level. Let me present to you one modern example of such a spiral in business technology development.
PLEs and Their Immediate Benefits
Dolphins and sharks are similar in size, their ability to move, and color. They occupy overlapping spots in the food chain. But they are not related. Dolphins live a conscious life full of communication, joy and play, while sharks exist through a lifelong blunt, gloomy, solitary, non-stop surf. On the evolutionary scale, a dolphin’s “technology of cognition” is very young.
All legal activities are conducted through legal entities. Corporations, partnerships and proprietorships are ancient and comparatively primitive, like sharks. A completely new species, programmable legal entities (PLE), now emerge, not as some development of previous business and legal concepts, but as a side product of an unrelated technology branch. PLEs are like dolphins. Not only they can move, maneuver, eat, and create waste as usual, they can also directly communicate between each other. One way or another, the coming of programmable legal entities was always inevitable — software eventually penetrates to all classes of objects. Make no mistake: this is not “death of the firm” which many decentralisation radicals advocate these days. This innovation applies only to the technical legal shell.
PLEs are very affordable and convenient so more people can do more business, legally. Software is universally less expensive than human labour. Plus, PLEs can legally operate with crypto tokens which reduces operational friction and costs. PLEs will also allow automatic taxation through methods of triple-entry bookkeeping. Opening a fully operational legal shell will be as easy and cheap as opening a bank account today.
Some Use Cases
The two very different strata share similar technological foundations — but their goals, principles, and prospects are…
To move, sharks and dolphins create body waves in orthogonal planes. Sharks move sideways; their tails are vertical. Dolphins move up and down; their tails are horizontal. However, in a practical sense, this technical difference does not mean anything. A horizontal tail neither increases speed nor improves maneuverability.
Technically, both the relevant regulation and the software frameworks that support programmable legal entities have emerged as the result of the interest in cryptocurrencies and blockchains. Enduring the odour of paradox all over, the broader business community has given the benefit of the doubt to those narratives. Ten years in, not a single distributed application represents a significant threat to an incumbent rival. By now, the hype is mostly over. Blockchain is a “horizontal tail” feature. Despite being part of its DNA, blockchains are not critical for the innovation in consideration. Blockchains are not conspicuous in how PLEs will complete against ordinary forms of legal entities.
Dependence on existing public blockchain platforms is dangerous, as they were created in conditions of extremely facilitated financing through mining of overvalued cryptocurrencies and, not too uncommonly, dishonest token sales to undereducated gamblers. There will hardly be more easy money. Tokens are very important, but they should be introduced organically, not as dummies primarily designed to run unregulated fundraising campaigns. The Gartner adoption cycle is very often cited in connection to crypto. Supposedly, now we just passed the disillusionment stage and are starting to go up the slope of enlightenment. That is hardly true. There are thousands of different crypto applications that have nothing in common from the consumer’s point of view. There is just no single object or idea of adoption. The situation is rather described by reputation cycles and right now it’s not pretty. Unfortunately, the current poor “reputation” of crypto affects both developers and legislators. We can only hope that the dirty bequest of the historically short ICO season dies off without destructing important structural elements.
Pony up, Folks! Programmable Legal Entities are Tectonically Reshaping Capital Markets
Great Future Benefits
Sharks and dolphins radically differ in the way they breathe. Dolphins’ lungs are fundamentally alien to water, which may seem odd. However, the ultrasound language is creatively complemented by the ability to create meaningful patterns of air bubbles, so lungs add a lot to the “core property” of being a dolphin — communication and cognition.
In this Internet age, ordinary entities always use a third party to pass payment or release cargo. There’s always “someone of trust” to provide an online coordination between the two, for a fee. PLEs transfer value and managing signals in a very different way; their “breath” is alien. They exchange authentic operational tokens, hand-to-hand, free of charge. This convenient and intuitive reality is the heritage of the trustlessness concept that inspired much of the underlying blockchain technology. Notably, while PLEs exploit the idea in a healthy way, to cut costs and reduce pressure of monopolies, the original decentralisation aficionados seem to have monstrously misinterpreted things, all the way down to the denial of the principle of trust between business parties. PLEs don’t question natural ways of creating relations in business, they use the technology to create the new advanced business fabric based on the “token calculus”.
PLEs may also induce new governance models and free us from hierarchies of primates and morale of wolves that still dominate all our management systems, despite the fact we all know they are heavily influenced by instincts and hormonal background. Well-designed PLEs will allow coordination of people and machines in a more civilized way by cutting out pointless middlemen, simplifying contracts, and reducing political friction.
PS: Join the Movement
The focus on price of publicly listed tokens is now statistically proven to be misguided as a proxy for ecosystem health. Simply speaking, crypto trading is irrelevant. Returns of crypto assets mainly correlate with two factors specific to its markets — momentum and speculator attention. There’s little sense to invest efforts into crowds of clueless speculators who don’t create any economic foundation for anything, being simply gamblers-at-heart (pachinko effect).
The last several months have proven that institutional capital, enterprise and regulators are all coming round to leverage the technology. To increase the likelihood of a sustainable business, they choose a real representation of things, not virtual tokens that create no responsibility for anyone. Venture capital and M&A activities have both hit new all time highs. Hundreds of deals have collectively raised around two billion dollars this year in venture capital and there were at least 30 M&A deals.
Well-crafted PLEs will facilitate the trend of normalizing the crypto space.