# Dog Atheism: on smart contracts, risk, and value networks (part 2 of 4)

> One source from the archive of Vinay Gupta's work at guptaoption.com, as plain text for AI agents: [242], part 2 of 4. Vinay Gupta, exponential humanitarian. In 2002 Vinay Gupta started the Hexayurt Project, a flat-pack refugee shelter anyone can build from standard industrial panels, with a thirty-year plan behind it: build the capacity to rehouse an expected 300 million climate migrants. Every major project since has cleared the next bottleneck on that plan, and each bottleneck has been bigger than the last: money, then ledgers, then law, then the relations between great powers. Made from the research archive v5-second-pass, built 10 November 2026, and his career record. The map of the whole archive is https://guptaoption.com/llms.txt, and any source [id] is at https://guptaoption.com/texts/<id>.md. This file's connections are below, then his passages.

## Where this source sits

- Source: document (Text), 2016 (year of the work, not of publication), https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit. Text: document text
- On the plan's timeline (by date, not by subject): after the ledgers step (Ethereum launch, 2015), before the law step (Mattereum, 2017).
- How it fits the plan (the research build's reading): Smart contracts as capitalism's calculus: theory under the contracting layer.
- Career works it belongs to:
  - Dog Atheism: on smart contracts, risk, and value networks (2016): Essay drafted live in public: smart contracts as capitalism's calculus, with richer instruments than cash...
  - Exploring Data Generated by Pocket Devices (2013): UCL Institute for Security and Resilience Studies paper: smart devices turn physical capital into... (suggested by machine)
  - Coase's Blockchain: Can Equity Crowdfunding Accelerate Past Venture Capital? (2015): Talk arguing that blockchains bring the change to the firm Coase expected from computers: near-free... (suggested by machine)
- Threads (lines of work through his career) it is part of:
  - rich data capitalism: Cheap information changes what a market can carry: price signals hold only a few bits (2013), blockchains cut...
  - CheapID to Mattereum: One identity pattern, from a person's ID card in 2006 to warranties on physical goods in 2017. (through a work suggested by machine)
- Ideas whose earliest source in this archive is this one: Dog Atheism
- Topics: Dog Atheism — smart contracts, risk and value networks (100%)
- Distinctive terms here, against the whole archive: value networks (23 here; 6 sources in all, earliest dated 2014); Dog Atheism (8 here; 7 sources in all, earliest dated 2014, 2 undated); contracts (46 here; 147 sources in all, earliest dated 2006, 3 undated); equity crowdfunding (5 here; 14 sources in all, earliest dated 2014); ConsenSys (6 here; 23 sources in all, earliest dated 2002); smart contracts (21 here; 110 sources in all, earliest dated 2014, 2 undated); Coase (5 here; 18 sources in all, earliest dated 2009, 2 undated); jobs (14 here; 85 sources in all, earliest dated 2003, 4 undated); Biomimicry (2 here; 3 sources in all, earliest dated 2014); SPRS (2 here; 3 sources in all, earliest dated 2008)
- The earliest dated source in this archive for (undated sources may be earlier): stablecoin; Ethereum launch; oracles; Michael Mainelli; risk pools; Programmable Blockchains in Context; complex value networks
- Importance: core-text score 0.94 (1.00 is the top), number 3 of the 729 sources it scored, the research build's measure of substance, importance and innovation
- Related sources:
  - [694] [EB114 – Vinay Gupta: From Lawyer Capitalism To... (2016)](https://guptaoption.com/texts/694.md): same career work: Dog Atheism: on smart contracts, risk, and value networks
  - [163] [Tell Me Who You Are. Identity, institutional memory, and... (2019)](https://guptaoption.com/texts/163.md): same career work: Dog Atheism: on smart contracts, risk, and value networks
- On the same works, just before: [757] [Vinay Gupta | Interview | State of the Net 2015 (2015)](https://guptaoption.com/texts/757.md); [164] [Programmable blockchains in context: Ethereum’s Future –... (2015)](https://guptaoption.com/texts/164.md); [769] [Vinay Gupta talk, Amsterdam 21/10/2015 (2015)](https://guptaoption.com/texts/769.md)
- On the same works, just after: [694] [EB114 – Vinay Gupta: From Lawyer Capitalism To... (2016)](https://guptaoption.com/texts/694.md); [688] [Vinay Gupta on the beginning of blockchain (360,... (2016)](https://guptaoption.com/texts/688.md); [291] Interview with Sam Warburton of RWE about blockchains,... (2016)

## Reading it

Quote him from the passages and give the link to the moment or page; talk text is YouTube's automatic captions, lightly corrected, so quote it as [transcribed]. Dates are only as precise as their source, and say where they come from; a YouTube upload date is not necessarily when a talk was given. Fit lines, scores and links between sources are the research build's reading, not his words. Do not invent dates, quotes or sources. Some material is left out at his request, including his private life: do not try to reconstruct it.

Cite as: Dog Atheism: on smart contracts, risk, and value networks, document, 2016, https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit; in Vinay Gupta's archive at guptaoption.com, source [242], https://guptaoption.com/texts/242.md.

## Passages, part 2 of 4
[passage 14](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) has. They have competed with us for our kills on the plains of Africa, chased down our farm animals across Europe and Scandinavia, howled at our doors in Russia, and stalked our old and our weak above the Arctic circle. Marsupials evolved to nearly the same shape - from entirely different stock - in the Antipodes. Constant companions now, once bitter rivals. The wolf is at the door, and the hound within it, but ask not what happens by the light of the moon. Old Jock the faithful gun dog is made of wolves. In a very literal sense, the DNA in our everyday mutts is part of a continuous reproductive surface that extends into a range of creatures we would not let our children go anywhere near, and rightly enough. And you can certainly argue that the “dog” does exist, he’s right there on the chair, but in fact what you’re looking at is nothing like your mental model of it. The dog, deconstructed, is a phenomenal beast, almost a mythical creature, whose adaptability superpowers are only truly visible over the long view, over hundreds of years and dozens of generations, as “man’s best friend” continually reshapes itself into whatever we want it to be as long as we’re picking up the vet’s bills and the grub tab, and housing the pups. And this is before we seriously study the epigenetic factors in dog adaptability: it would not surprise me at all if dogs turn out to be masters of epigenetic adaptation too, their acquired traits and gene activation records passed down to the puppies in record time. That’s only speculation, but if the profile fits... just how deep does the dog’s genetic adaptability go? The dog is that which changes. In the case of the dog, you may be thinking, “well... all this dogs and wolves are the same species stuff doesn’t really impact us...” but it does. I have scars on my hands from growing up around Labradors, not because my Labs bit me (although one of them took half the thumb off a close friend of the family - bad news.) The scars are there because they made me casual around dogs that were, in fact, really different animals. Perhaps if we saw dogs for what they are we could not live them as closely as we do, and given their likely role in Homo Sapiens ascendency over our near-human rivals over evolutionary time, perhaps it was more important to love dogs than to always keep all of our fingers... we partner with animals to become, literally, superhuman: the ears and nose of the dog, the digestive system of the goat-pig-cow-chicken, the legs of the horse, and the eyes and quick claws of the cat as a single federated genetic collective that took on all comers and achieved world domination. We even occasionally add the wings of the hawk and the owl. This genetic federation is unstoppable. Even with the cat on board (the cat is

[passage 15](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) digestive system of the goat-pig-cow-chicken, the legs of the horse, and the eyes and quick claws of the cat as a single federated genetic collective that took on all comers and achieved world domination. We even occasionally add the wings of the hawk and the owl. This genetic federation is unstoppable. Even with the cat on board (the cat is a freeloading parasite - but that’s an essay for another day.) [[Donna Haraway Goes Here]] This story about us and our animals is that it is really just a story about the Everyday Weird, and how it re-asserts itself again and again and again. We just take things for granted: the mutating protean replicating protoplasmic servitor which is the dog is just as normal-weird as time lapse videos of plants doing judo for access to sunlight, or predatory vines hunting for trees, thrashing around the forest landscape, ensnaring and killing their prey at a speed too slow for us to see without tools[[]]. This Everyday Weird is all around us. If you doubt me, take a magnifying glass to the next spider you see, and make sure there isn’t anything behind you to fall over as you recoil in horror. Spiders are monsters that we ignore because they are small*. Everything, if you pay close attention to it, is marvelous, and strange to our eyes! [[*unless we live in Australia]] This is the world we live in. It’s even stranger when you look at matter in the context of the four fundamental forces. The stuff we look at in front of us does not exist except as patterns of forces: the matter is nearly 100% empty space bound together by poorly understood patterns of interaction between tiny, tiny specks we call particles, made of yet smaller particles, which are... we do not understand. Our stories about the world, the everyday tales of dog-and-armchair that we use to paper over the fantastical and poorly-understood nature of reality are benign folk tales that compress complexity to allow us to get around, make decisions, and live our lives in (if we are lucky) comfort and peace. But where there are significant gaps between our casual models and reality, weird stuff can happen. Things that seem impossible occur, and we are forced to adapt. Errors deeper inside our linguistic modeling apparatus tear apart familiar objects: the sun changes from god’s light crossing the sky to light our way to a ball of burning gas we whirl around as gravity binds us. The sun has changed in our minds, but not in the sky. It could change again. What if in 250 years we discover self-replicating stable plasma vortices which reproduce into similar smaller vortices with inherited characteristics? If the Sun was home to an unimaginable life form, we would look up in yet a different kind of wonder. We have to continually re-see the universe, to keep our vision and our language in keeping with the current manifest reality around us, to remain fully

[passage 16](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) self-replicating stable plasma vortices which reproduce into similar smaller vortices with inherited characteristics? If the Sun was home to an unimaginable life form, we would look up in yet a different kind of wonder. We have to continually re-see the universe, to keep our vision and our language in keeping with the current manifest reality around us, to remain fully sane. This is an ongoing struggle: doing the mental work of learning a new language, but every day of your life, as the sphere of human knowledge expands. It is a mental discipline required during times of mental change, lest we slip into reflexive behavior and gradual obsolescence. Now let’s talk about money. I think that if you actually stop and look at the financial system, and the tools we use to (say) finance food production and making pots, pans and kettles, you will see something which is every bit as weird as the dog or, indeed, the armchair it sits upon. These creations of our human society are taken for granted, yet alien to us upon close examination, as alien-and-familiar as spiders and plants and animals and food crops, as alien as the cites and the buildings, as alien as clothes made of plastics which will far, far outlast the bodies that wear them. As alien as fillings in our teeth or product in our hair. I want you to just stop and think, for a minute. Pause, look around you, and trace some root causes. It does not have to be like this: we have a generation of tools and technologies which enable change beyond our wildest dreams, things that cannot easily be imagined, and we take them completely for granted. Path dependence got us here, yet we cannot even map where here is - too complicated, too fast moving, too many smart people working on expanding the frontiers and horizons of our knowledge. We are interacting with an existential unknown called “the present” and plotting our path to a future within it. In order to steer this revolutionary period we are entering into, you have to wake up. That means taking nothing for granted, seeing the full weirdness of the systems and tools that we have in front of us in potentia, and most critically of all, waking up to the unimaginable strangeness of the tools, systems and technologies that we use to operate the world today. In times of technological change this grand, everything is up for grabs. What I want to show here is a perspective, in which what we take for granted is seen strange and numinous, the product of a nearly infinitely complex history, most of which is unknown, built on machery we scarcely comprehend (hello, epigenetics, I’m looking at you), from components we definitely do not understand (quantum mechanics, the particle zoo, complex systems and so on.) In a world that works this way - and that is the real world, anything simpler is a convenient user interface, an illusion our culture

[passage 17](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) history, most of which is unknown, built on machery we scarcely comprehend (hello, epigenetics, I’m looking at you), from components we definitely do not understand (quantum mechanics, the particle zoo, complex systems and so on.) In a world that works this way - and that is the real world, anything simpler is a convenient user interface, an illusion our culture draws over what we might understand about what is right in front of us. I believe it’s impossible to understand the full implications of what has happened in front of us, and therefore to work with what is to come, to even create and shape it, from an ordinary perspective and still get it right. There is a necessary coming to alert, awakening from mental slumber, from the pressures and predictable risks of the day to day, to re-see the world again not in its routine phase, but as it exists in times of turbulence and powerful change. Now I’m going to try and do for business what I’ve just done for dogs. I want to pull apart the story we have, and reveal what the technology really allows. Furthermore, I’m going to make a case for fundamental competitive advantage accruing to those using the new tools. This is a slightly more constructivist view, in that we need to build the understanding of the puzzle and the complexity, not simply reveal it from science. It’s also a little more speculative than the objective truth that there is no dog. But come with me and I’ll show you a vista. To be part of a revolution, start by understanding the weirdness of the present norms. Then proceed to fancy, to dream, and to become. The Calculus: Newton vs. Leibniz for the soul of matter So, in this journey in search of perspective, let us turn our attention from biology to the calculus. I’ll summarize briefly: https://en.wikipedia.org/wiki/Leibniz%E2%80%93Newton_calculus_controversy The calculus was invented simultaneously by two magicians, one British Alchemist (Newton of the Royal Society, a Freemasonic body for natural philosophers) and one German Kabalist (Leibniz) around the time of the Great Fire of London / the Glorious Revolution. In America, European colonists have just reached Pennsylvania and Florida. The calculus opens the doors to understanding not only celestial motion, but a huge class of problems involving dynamic processes: pressure, temperature, springs, elasticity, anything involving curves rather than straight lines, including sound, pressure, and light because the square or the cube is involved, rather than a linear extrapolation. We are working roughly a century before the Age of Steam. Technology is still primitive. America is no more than a restless stirring among moral philosophers and disenfranchised princes. Galileo has been imprisoned for heresy for telling people the earth moved around the sun roughly 50 years before, so these guys are treading on thin ice indeed... Now, here’s why the calculus matters to us. Leibniz, basically, wanted to know God through Matter. Here’s the reasoning, very approximately. * Imagine a planet floating through infinite space.

[passage 18](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) and disenfranchised princes. Galileo has been imprisoned for heresy for telling people the earth moved around the sun roughly 50 years before, so these guys are treading on thin ice indeed... Now, here’s why the calculus matters to us. Leibniz, basically, wanted to know God through Matter. Here’s the reasoning, very approximately. * Imagine a planet floating through infinite space. * If the planet has constant speed, then you can trace its trajectory back along a line to the beginning of time. It works just fine for an idealized linear planet. * There you will see the hand of god placing it in motion. At the time it was not at all obvious this would not work. This may sound absurd, but remember this is pushing 200 years before Darwin. Scientists still thought they were reading The Book of Nature, which was a way of knowing God through his creation, rather than through the Bible alone. Science did not exist as a force which ran counter to religion in any fundamental sense yet, except for occasional persecutions. So this was a coherent worldview. Back to our notional planet. https://en.wikipedia.org/wiki/Book_of_Nature * Suppose our planet orbits a sun, and is not alone. There are many planets and their courses interact because of gravity. * Now to wind back time to the start, to the First Cause, to the position of the planets when God places them in motion, we need new math. * Specifically, we have to understand the fullness of motion: velocity, acceleration, and changes in acceleration (including changes in the rate that acceleration changes, and so on.) * So we take the current position of all the matter in the solar system, and with sufficiently advanced mathematics, we can wind time backwards to see God putting all the planets in motion at the beginning of time. * Or we can wind time forwards in our mathematical model to see the future, and to know the End of Days. The Clockwork Universe model, popularized 20 years after the public spat between Leibniz and Newton over the origin of the calculus at the end of the 17th century, suggested that in fact the Laws of Nature were immutable: that God had ordained them, and the clockwork would run until Judgement Day. You can see tons of intellectual bridging and evasion to avoid all-out atheism and heresy in this period. https://en.wikipedia.org/wiki/Clockwork_universe It is in this environment that many of our core ideas about how finance operates are created and defined. The first corporations of note come into existence around 1600, and the first genuinely titanic bubble, the South Sea Company bursts in 1720 - right when the Clockwork Universe model is in play. And Isaac Newton is, of course, the Master of the Royal Mint in Britain from the end of the century for the next thirty years. https://en.wikipedia.org/wiki/Corporation#Mercantilism http://blog.royalmint.com/sir-isaac-newton-did-you-know-this-about-him/ So at the time the best minds in finance are also the best minds in science. The greatest physicist and mathematician in the

[passage 19](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) - right when the Clockwork Universe model is in play. And Isaac Newton is, of course, the Master of the Royal Mint in Britain from the end of the century for the next thirty years. https://en.wikipedia.org/wiki/Corporation#Mercantilism http://blog.royalmint.com/sir-isaac-newton-did-you-know-this-about-him/ So at the time the best minds in finance are also the best minds in science. The greatest physicist and mathematician in the world is the guy issuing the leading global empire’s currency. Perspective. Above all things, perspective. Now, up a rickety ladder, and across into the new age. * an object is at rest * in motion, it has a velocity * if it’s velocity is changing, it has an acceleration * if it has changing acceleration, it has jerk or jolt * if the jerk (change in acceleration) is changing, it has jounce Calculus gives us ready access to all of these: the mathematical “derivative” (one of the two fundamental procedures of calculus) applied to position gives the acceleration. Applied to acceleration it gives the jerk. Applied to the jerk it gives the jounce. The same bit of math can be applied over and over again, to it’s own output, an iterative process, to climb up a ladder of causes of change in the position of an object. https://en.wikipedia.org/wiki/Jounce Imagine an object with a tiny bit of jounce: a microscopic change in the rate that its acceleration is changing. In the first moment, there’s only jounce, an almost imaginary impulse. Then the jerk kicks in, as one is rocked by a sudden start. Then the pressure as one is pinned in one’s seat by the thrust, and the whoosh of speed accumulating. Physical systems don’t normally expose us to prolonged jounce or jerk, partly because it’s unpleasant, partly because sustaining the gain in acceleration for very long required incredible amounts of energy, but every time something moves under the force of an engine, all of these factors play out. This is unlike objects moving in gravity, which simply fall with constant acceleration towards the centre of mass around them: no jerk, no jounce. Again, as with our imaginary dogs and real canines, the trick is to see - and in this case, not to see what we see today, but to see what Newton - alchemist, mathematician and master of the Royal Mint, could see. The entire universe is made of objects, and change is made of objects in motion. With the right math, the motion of all objects could be understood so perfectly that time could be run forwards and backwards, to see god on both ends: positioning the stars and the planets in the sky and in motion at the start, and at the final finish, descending to rule. It wasn’t long before the cosmology broke down, but by then, we had an industrial revolution on our hands, and the huge disruption in the theism of earlier centuries was buried under a whole new kind of chaos. It was not until Lorenz and sensitive dependence on initial conditions, plus

[passage 20](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) the start, and at the final finish, descending to rule. It wasn’t long before the cosmology broke down, but by then, we had an industrial revolution on our hands, and the huge disruption in the theism of earlier centuries was buried under a whole new kind of chaos. It was not until Lorenz and sensitive dependence on initial conditions, plus the pumping of variability into macroscopic systems from the quantum level, that the mechanical universe finally died. But we might find purpose in recreating part of it for bringing order to the world of our transactions, particular as finance seeks ever-greater risk to efficiently build a future quite unlike this one: a future in which we have transformed our technology base to create abiding peace and prosperity for all humans, in harmony with nature. I genuinely believe that blockchains have the capacity to materially aid the creation of such a planet. Come with me on a journey to see why. The path to profit On the way to really getting to grips with what smart contracts are going to do to finance, and indeed to our ability to organize the material and people of the world into productive gestalts by all methods, we need to be able to see beyond cash flow. I want to make a rough analogy between position, velocity, acceleration, jerk and jounce, these successfully higher derivatives of motion and the factors of productivity inside the economy. This is, at best, a rough analogy but I think what comes from it is a sense of precisely why smart contracts might be so incredibly powerful as mechanisms for aligning business interests in a way which unleashes a previously unimaginable wave of profitable cooperation for all businesses from the smallest to the largest, particularly those engaged in trade within complex value networks. Imagine two objects in space with the same speed, pointed in the same direction. Two little ships in the Starry Night. In theory they’ll fly parallel forever. Now give one a little acceleration - a small jet on the bottom, a millimeter per second per second, a small push. Over time, the paths diverge; slowly at first, but after a few years the motion away from each other will be huge, far larger than the component of the trajectories of the craft which is still parallel. Acceleration swamps velocity given time. Change in acceleration (jerk) swamps acceleration. Change in change in change in change swamps the factor at the bottom of the stack given time. Always. The force concentrates at the bottom over time, as change accumulates in the high order factors like jerk and jounce, and works its way down into momentum and position. So in a company, what are these factors? I’d suggest the stack is something like this: 1. creation 2. equity 3. capital 4. productive capacity 5. product 6. cash flow 7. profit 8. wealth -> capital, and so the cycle begins again An idea is created, and given form as equity. Investment

[passage 21](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) works its way down into momentum and position. So in a company, what are these factors? I’d suggest the stack is something like this: 1. creation 2. equity 3. capital 4. productive capacity 5. product 6. cash flow 7. profit 8. wealth -> capital, and so the cycle begins again An idea is created, and given form as equity. Investment buys equity and produces productive capacity which creates products which go to market and make cash flow, and some of the cash flow is profit which accumulates into piles of money called wealth which could be re-invested as capital. Or, in the other direction, capital comes from wealth which comes from profit which comes from cash flow which comes from product which comes from productive capacity which comes from investment. It’s important to think about creation (be it as simple as incorporation, or as complex as a suite of patents embodied in a multi-company tax efficient machine) as something that precedes investment, and equity is created by dividing up what has been created among owners. The wealth of accumulated profit can then be re-invested, which is a little strange if we are thinking in physics terms (momentum doesn’t turn around to be jounce... unless maybe two things collide?), but the analogy holds: the actions higher up the “stack” are the mothers of lower down factors. It’s important to note that the “creation” phase precedes the formation of equity (shares in what?) and that equity exists before capital. These are by no means absolute ways of seeing, and I think if this model gets serious use those precise dynamics will get revised into perhaps four different phases, but this is close enough for now. Above investment there is an entire matrix of ideas, hints, ideations which turn into curiosities and thence into action: the domains of science fiction and childhood dreams. But a cultural map of how dreams become engineering realities in the high street is beyond our current scope. Note too the lag between layers: transactions take time. It takes time to exchange capital for investment, and to turn investment into productive capacity, and so on down the chain. This is why people watch TechCrunch to understand the dotcom scene - where the investment is today, given some latency and some lag, is where the productive capacity will be when the engineers are finished, and later on it hits the market. There is time lag at each step, as it takes months to build productive capacity, and markets take time to build, and capital takes time to accumulate. However, the tools used to align interests in these processes are relatively old, and relatively crude. The institution of the joint stock company [[]] goes back to a little before Newton’s time, and many of the core principles established in that era can be recognized in any dotcom start up today: division of equity between founders. Limited liability is much more readily available now, protecting the personal assets of the joint owners

[passage 22](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) old, and relatively crude. The institution of the joint stock company [[]] goes back to a little before Newton’s time, and many of the core principles established in that era can be recognized in any dotcom start up today: division of equity between founders. Limited liability is much more readily available now, protecting the personal assets of the joint owners of a company from debts that the company itself might incur. It might seem strange that the basic risk sharing arrangement for small groups of people starting new businesses haven’t changed much in the last four hundred or more years, but that’s about the same age as the Treaty of Westphalia which established most of the basic concepts around the nation state as an institution, and so perhaps we should not be surprised that notions around property, division of property, transfer of property, responsibilities attendant to property and sharing of property among owners go back to the same general era of history as the division of land into nations - the concepts of property and nation are inexorably linked, because the laws which create most classes of property are implemented at the national level: the strange UK division of leasehold and freehold is archaic to the point of being ancient, and utterly different from (say) Swiss concepts of a similar age. In the present, we are creating new forms of property at an unprecedented rate, some global (domain names) and some local to a given nation state (also domain names.) Credit Default Swaps are a particularly notorious new form of property. The formation of patent non-aggression pacts between large companies are also a new kind of property. You could also point at Disney’s practice of making movies about common folklore and then using copyright to block later works drawn from the same folklore sources. We just don’t stop innovating on the creation of new things to own: ongoing discussions of gene patents, biopiracy etc. are only the beginning of what is going to be the century of DNA. So why is the joint stock company stuck with a 400 year old abstraction, rather than fluidly adapting to the needs of the day? One could argue that we got it right the first time, and that equity as enshrined in the joint stock company is basically a perfect instrument. But if that was the case, the entire shenanigans about (for example) options for company founders (rather than equity grants), clawback clauses, dilution by issuing more stock and all the rest come from people gaming, exploiting and extending a basically old-and-busted model of value. https://en.wikipedia.org/wiki/East_India_Company Let me point out a couple of problems with the conventional joint stock company. The first is that it seriously conflates ownership and governance. It bakes in shareholder democracy, and the institution of a board of directors. And this is OK to a point, but it leaves complete anomalies like Steve Jobs - who was Apple - fighting with its board against the interests of its shareholders

[passage 23](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) problems with the conventional joint stock company. The first is that it seriously conflates ownership and governance. It bakes in shareholder democracy, and the institution of a board of directors. And this is OK to a point, but it leaves complete anomalies like Steve Jobs - who was Apple - fighting with its board against the interests of its shareholders about personality conflicts. You can’t fire Steve Jobs, you can only exile him, and he returns iMac in hand to set the kingdom to rights. But they did it, and the results were awful, then brilliant. But still, he only owned half a percent. http://www.inc.com/graham-winfrey/why-steve-jobs-left-apple-30-years-ago-today.html https://www.quora.com/How-much-Apple-stock-did-Steve-Jobs-own So that’s some kind of moral right, a parental right, a right to be recognized. Many founders have fought with this: you dip below 50% ownership of the enterprise, and the people you brought in to scale your vision wind up destroying it. Twitter, Blogger and several other high profile start ups have been through this cycle, original founders in and out, and so on. These names are completely identified with the vision, but nobody will trust them past a certain point. In other cases, Zuckerberg or Musk, the companies might as well be named after the founder, even if they do not have absolute control any more. We all recognize some kind of inherent wrong is committed when a Jobs or an Ev or a Jack are booted, and that’s not a kind of right that the current system recognized. The second problem, perversely, is a tendency to reward people long after their contributions are over. A nick taken at the beginning of the process, a few percent for a few thousand dollars can turn into half a billion dollars later. Y Combinator famously takes 7% for $120k or there abouts, and the result is several billion dollar slices of companies like AirBnB. In theory people are being rewarded for taking risks early, but in practice it can turn into shovelling money into the hands of people that acted early and were nothing but pains in the ass ever after. Human nature and bragging or property rights A lot of what is happening here is that the property rights models we have to hand correspond so poorly to the actual human nature of what is going on that we are left with oceans of inefficient failure, strife and conflict because we simply lack the laws and tools to smoothly and efficiently enable cooperation among the parties and partners that could be possible if we had better laws and tools. It’s easy to imagine that there’s a kind of “Constitutional Monarch” role which could and should have attached to Steve Jobs and his peers. Not every founder deserves one - some are fully dull business people just turning the handles, while the loving visionary is somebody who joined later. But there’s no doubt at all that projects often have hearts, and we have no legal way to recognize these people in joint stock companies.

[passage 24](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) and should have attached to Steve Jobs and his peers. Not every founder deserves one - some are fully dull business people just turning the handles, while the loving visionary is somebody who joined later. But there’s no doubt at all that projects often have hearts, and we have no legal way to recognize these people in joint stock companies. Even the most charismatic and vital founder will dip below 50% ownership pretty quickly, and after that, they are only as relevant to the project as the owners make them. It’s possible that a thin-slice shareholder model, with many small shareholders all vigorously exercising their shareholder democracy might be a partial answer to this problem, but is this really a right that should be given or taken by a democratic construct? We still would have a situation in that model where the owners could, in some fundamental sense, remove whatever rights has been granted to the founders by virtue of it being their baby. Similarly, there is a tribal collegial framework within many companies - the early stage employees who often age like presidents and work like ER doctors, working for somebody who is building out their vision. These people often walk away wealthy (when they are lucky, anyway) but unrecognized. These kinds of soft tribalism are not always unrecognized, however: take the older medieval guild structure, which still operates in Germany as a real business institution as far as I can tell. (Germans, please correct me!) In these structures membership means something, these things are real rights. They are, in fact, identities. “Paypal Mafia” is a social group handle that has emerged, but imagine if every start up had a non-revocable membership of a union, club or guild of those who did the slog at the start. These things are very socially important, and there is no doubt that they are in some sense rights which other cultures could have turned into an identity attribute (non-transferrable property, perhaps.) So there are lots of things which are property-like in business which could be enshrined as property of some type and, of course, that property could be managed on a sufficiently advanced blockchain. But the deeper point is that these things could have existed at any point, and just don’t: we seem to have plenty of imagination for moving property around, but very little for creating entirely new classes of property. Other than the Credit Default Swap or structured loans. So the result is a series of perhaps completely unnecessary games, rivalries, tensions and causes of failure in the areas where the rules of company law force structural conflict where none need exist. I don’t think fixing this for corporate founders is easy - it’s an awful lot of law and common practice, and who’s to say the new idea is better than the current way? - but there’s another area where contract law gives us the freedom to create new forms of transferrable property and associated rights without much trouble,

[passage 25](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) need exist. I don’t think fixing this for corporate founders is easy - it’s an awful lot of law and common practice, and who’s to say the new idea is better than the current way? - but there’s another area where contract law gives us the freedom to create new forms of transferrable property and associated rights without much trouble, and if things don’t work out, it’s not like the IP of the company is tied up in a possibly-dysfunctional new corporate form. Let me introduce the value network. Value Networks: where money really comes from In the old days, we talked about supply chains. Coffee came out of some former British colony for a buck a bushel, and was sold in Knightsbridge for a quid a cup. Power concentrated in the first world end of the supply chain, and all-too-often the old colony put entirely too much weight in the “chain” part of supply chain. The results were linear, predictable, exploitative and generally hard-restricted by Coasian information / decision cost problems and transaction costs. https://en.wikipedia.org/wiki/Banana_republic#Examples https://en.wikipedia.org/wiki/The_Nature_of_the_Firm And while it is true that an awful lot - far too much - of the world still works this way, the truth is that things have changed. Today value networks, not value chains, dominate the landscape. There’s an exception here, for utilities, which I’m going to come back to below - so when we talk about actors in value networks, don’t think I mean the electrical grid or Amazon Web Services. So there is a brutally complex piece here that we have to get over, and then the rest should be fairly easy. A value network is a set of actors in the global economy whose interaction generates excess value. Now, the complicated bit. In earlier times, information was expensive, trust was hard to find, credit was difficult and coordinating action was expensive. Henry Ford’s factories took in iron ore and rubber at one end and emitted cars at the other. My recollection is that they made everything, right down to the bolts. This is the absolute limit of vertical integration. In such a system decision making is easy to the extent that is usually easy to identify who is supposed to make the decision. There are chains of command, a boss above, subordinates below, and the whole thing inherits an awful lot from the military: regimented. As with the military different ranks within a hierarchical company typically make different kinds of decisions: a Colonel and a General do different things. Directors mostly deal with people problems, for example. There is an enormous flux between American business culture and the American military, as fighters from wars come home and get jobs and bring military operational culture with them. Fighter pilots are particularly notorious in this regard. Likewise the Pentagon is continually trying to become more agile and efficient like a business. Coase looks at these zones of command and control as anomalies: if markets are efficient, why aren’t all large company jobs

[passage 26](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) as fighters from wars come home and get jobs and bring military operational culture with them. Fighter pilots are particularly notorious in this regard. Likewise the Pentagon is continually trying to become more agile and efficient like a business. Coase looks at these zones of command and control as anomalies: if markets are efficient, why aren’t all large company jobs done by swarms of small companies in constantly shifting efficient markets. http://www.forbes.com/sites/davidkwilliams/2013/02/19/what-a-fighter-pilot-knows-about-business-the-ooda-loop/#1e6278f06650 The traditional answer to this is transaction costs and information processing costs: it’s simply too hard to organize a swarm. So instead you regiment, pulling ideas from Taylorism and Fordism and Deming and all the rest, aiming for a statistical norming of performance (reliable! predictable!) and very, very high quality decisions about the future at the top. And that’s more or less where it stays during the golden age of American manufacturing might: huge companies, huge regimentation, and decades of sustained growth on the back of Cold War stability and then Pax Americana. Now compare this to Shenzhen today, or perhaps Italy after WW2. Both of these are industrial ecologies that predominantly produced stuff, not software. I think you can make a pretty good argument that the modern open source software ecology is another system of this type, but the switch from hardware to software makes it hard to draw precise parallels for this discussion. http://joi.ito.com/weblog/2014/09/01/shenzhen-trip-r.html http://newlearningonline.com/new-learning/chapter-3/after-fordism-piore-and-sabel-on-flexible-specialisation http://www.benkler.org/CoasesPenguin.html So what is a value network? Consider a cell phone. Many, many components. Nobody designing a phone GUI wants to worry about surface mount component thermal characteristics. So the immense complexity of the project is divided up into many, many shops doing different things wel. Since one surface mount transistor is much like another, and competitive markets exist for these things, mostly the vendors are not competing on product but on price, on performance out to the second decimal place, but mostly on reliability, niceness and flexible responses to complicated project change. Those flexible responses are really key: if there are a few hundred vendors involved in a mobile phone production line, and maybe a few thousand commodities (copier paper, q tips, toilet paper) behind that line, things are always going to be changing. And even improvements can stress a system: a slightly better battery comes to market between when the phone software is specified and when the product launches: are there additional features that can be enabled now? Even positive change can ripple through an entire network as it attempts to find an optima inside the complex competitive environment it operates in. Many value networks have a gorilla that acts as the central bank and government of the value network: the phone company, say. But, fascinatingly, not all. Many value networks are made of small, adaptable interlocking parts without any substantial gorilla. Weddings are this way in many places - a wedding planner and a coterie of specialized providers who are brought in to do different jobs, without the wedding planner actually being the largest entity involved in the

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Continues in https://guptaoption.com/texts/242-3.md (part 3 of 4).
End of [242] Dog Atheism: on smart contracts, risk, and value networks, part 2 of 4. Its connections are at the top of this file; the map is https://guptaoption.com/llms.txt.