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

> One source from the archive of Vinay Gupta's work at guptaoption.com, as plain text for AI agents: [242], part 4 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 4 of 4
[passage 40](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) example, let’s imagine a four level value exchange contract between two companies. They agree that they will exchange cash, a percentage of revenue, a percentage of profit, and some equity as part of a package of work. Let’s say that in addition there is a flow of physical goods. A smart contract to implement this might be a couple of dozen lines. Perhaps it would be tied to supply: for each 10kw diesel generator which company B takes delivery of, company A receives $7400 in cash (paid in a stablecoin), and the companies exchange 0.1% of their profit and 0.3% of their cash flow. A heavier flow of generators more tightly couples the companies - 100 generators so ld turns into a 10% profit sharing arrangement and a 30% revenue share. Now imagine that one partner hits problems: company A has a cashflow crisis. At this point, the alignment of interests between A and B is very serious. Perhaps B is cash-rich and doesn’t want to see their equity stake (and future revenue share) in A nullified by a bankruptcy case... instead of a lethal cash flow crunch which kills A, perhaps B simply extends its pre-existing equity in A a little more, or in exchange for a greater revenue share later (a more flexible instrument than interest.) Complex flows of value between trading partners might deliver flexible response across value networks: alignments of interest at once deeper and more immediate than simply figuring out how much to invoice, or how much of a company one wishes to own. Think of this kind of flexible arrangement as a ball bearing or a shock absorber between two parts of a value chain. Rather than the naked metal grinding surface of unaligned self-interest, we present a spring-and-rod arrangement. Small shocks are absorbed by the spring, and everything is kept lined up by the rod. Something goes a bit wrong, the spring gets hit hard, but the essential mechanisms on either end are spared a crushing, jarring blow to their inner workings. Now imagine a complex value network made of five dozen small companies, and a few larger ones, delivering a complex product into a global marketplace through a variety of channel partners. In such an environment, if the connections are all bare-metal (self-interest meets self-interest) the odds are that the whole will fall apart. Buffering, if it exists, will be in the form of contingency being added to prices at every step of the process, resulting in a far higher bid to the eventual customers. But, most of all, the complexity of the structure makes it fragile: if the direct grinding of self-interest on self-interest crushes a small-but-vital partner, the entire deal could ship late because one player got squeezed too hard, collapsed, and had to be replaced, delaying the whole project. Obviously in the real world often the human trust networks which interpenetrate such complexes of contracts usually sorts the issues out before something breaks at a financial level, but all

[passage 41](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) self-interest on self-interest crushes a small-but-vital partner, the entire deal could ship late because one player got squeezed too hard, collapsed, and had to be replaced, delaying the whole project. Obviously in the real world often the human trust networks which interpenetrate such complexes of contracts usually sorts the issues out before something breaks at a financial level, but all of those human connections take time and attention to generate, and our ability to get solidly settled with large numbers of new people is limited by what appear to be fundamental factors of our sociobiology. If we scale our trust through 60 or 80 new people in a new value network we are part of, who do we forget in another part of our life? https://en.wikipedia.org/wiki/Dunbar%27s_number We are only human, after all. Consulting with smart contracts So suppose instead we have these complex instruments at our command. Suppose I am a freelance strategy consultant. I can walk into a company for an afternoon and teach them a new way to see the world which will cut their time to understand their response to a fundamental new technological shift affecting society by 50%, and lessen their chance of making a catastrophic mistake by 10%. I’m clearly adding a ton of value, but this value is not best represented by them paying me £2800 a day, or giving me 0.5% of their company reflecting my value over time. Both of these things may accurately reflect my value: more income in the short term, or more fundamental value in the long term. But what about the medium term? Perhaps my advice is really useful for two years, and then they’re out of my league and need to talk to advisors who understand big business strategy more, or maybe they move into a field where the technology is outside of my ken, like software for biotech. Cash now might represent that value accurately. Equity probably doesn’t. But ideally as long as they were benefitting from my advice, they’d pay me something, and as soon as they were out of that zone, those payments would stop. We informally manage these kinds of relationships all the time using instruments like retainers or paying for the benefit from one contract by inflating the price on the next round of consultancy. But these informal mechanisms, again, consume a substantial amount of mental effort as we manage complex, tangled nets of relationships. We are basically bridging the underlying inadequacies of our common contracting frameworks with “emotional labour” - constantly keeping tabs on large numbers of people’s lives, keeping our social capital in good repair across a variety of social scenes, and generally being a good citizen of a productive network. But if we had better underlying contracting instruments, perhaps some of these processes would rely less on constant emotional effort to create and maintain social capital. More could be done by the word on the page (or the contract in the blockchain) leaving a bit more time and emotional

[passage 42](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) scenes, and generally being a good citizen of a productive network. But if we had better underlying contracting instruments, perhaps some of these processes would rely less on constant emotional effort to create and maintain social capital. More could be done by the word on the page (or the contract in the blockchain) leaving a bit more time and emotional energy for us and our personal lives - or (capitalism being capitalism) for further hyper-extension into ever more rarefied areas of risk and return. Contracts which accurately meet our needs free up resources, or add resilience to the underlying network which generates the value - and to our lives. If each individual element in a value network is more stable because the network of its customers and its vendors do not present the flat, hard, cold surface of naked self-interest, but instead a sprung, padded, blended surface where splits on revenue, profit, and equity result in partially cooperative response in areas where (right now) the rules of the game are kill or be killed. Enormous amounts of time, money and energy are wasted sorting out issues of trust in situations where people’s needs would be better met by contracts which fundamentally aligned interests, rather than trusting that come a crisis, somebody will act against their own legal interests to benefit you. Better to align the interest so that you never have to figure out whether somebody will harm their interests to protect you because it is The Right Thing To Do - rather, make sure that doing the right thing in a crisis is the financially best option for all parties. I’m convinced that it is possible to do this for a large class of current activities, from consortiums of specialists doing web design with several different people handling different parts of the job, up to manufacturing operations like Tesla. The key is transaction costs. Right now the typical package in a deal with a substantial possible gap between the contract value and the actual utility of the deal is trust: if this turns out well, we’ll take care of you on the next round is an absolutely standard construct all over the business world. It’s an endemic agreement form. Contracting entities are insufficiently flexible because sufficiently flexible contracts are simply too expensive. Most businesses don’t know for sure what their cash flow is, never mind their profit. But for future businesses with a substantial exposure to blockchains, much of this data might be available in real time or monthly rather than annually and in arrears. Contracts can then be written against that data, automatically triggering payouts as resources are registered. This is not dissimilar to the way that companies used to pay dividends to shareholders and, in fact, it may be that dividend payments are part of what is missing in the current landscape. The high growth environment produced by companies reinvesting 100% of their winnings (minus executive compensation’s explosive growth!) may also have taken quite a bit of

[passage 43](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) registered. This is not dissimilar to the way that companies used to pay dividends to shareholders and, in fact, it may be that dividend payments are part of what is missing in the current landscape. The high growth environment produced by companies reinvesting 100% of their winnings (minus executive compensation’s explosive growth!) may also have taken quite a bit of financial transparency out of the system as a whole: there are no fleets of shareholders asking exactly what the company’s state is, and are they sure they couldn’t afford another guinea on a share this year? But in a blockchain environment, a lot of that transparency will return. As a result, it becomes possible to write contracts against some of these usually-hidden fundamentals: revenue in this business unit, or profit made on this specific business line. Being able to write contracts against these kinds of internal variables creates the possibility of being able to reward fine-grained creation of value in a complex value network environment, both between but also within companies. Complex consortia In a complex business environment where you have, say, 60 legal entities tied together to deliver some big project, it’s easy to imagine a situation where this meshing of contracts and value results in a completely impossible tangle of contracts. If these contracts are smart contracts, however, there’s an interesting reason for hope: they are machine readable and precise. Of course we would expect most of these smart contracts to be Ricardian contracts - contracts with a legal text, a plain English translation (maybe), and a smart contract which executes the business logic automatically. So, in theory, it is possible to load all of these contracts into a simulator, and run them through all possibilities using (say) a Monte Carlo simulation approach. Basically you run through lots and lots of scenarios and see what happens. This ability to simulate contract interactions is likely to be much, much more predictable than situations where the contracts are all written on paper, and there may not be transparency about the status of the contracts or their intentions in the parts of the value network that you cannot see into. A blockchain provides a level playing field for all partners. So we imagine a fleet of smart contracted partners in a complex value network: 60 companies in a mesh, reaching deep into each-other’s pockets on cash flow, profit shares, specific information about sales, equity perhaps including innovations like decaying equity, and the whole thing is fed by a series of Oracles (perhaps provided by auditors) injecting facts like the price of oil and the amount of steel in the warehouse into the smart contract network. A simulator wargames out all the options available, giving a real time health dashboard on the status of the partnerships. How is this different from a company? The answer is simple, but startling: a company is (even in a partnership-based enterprise like a big accounting firm) a hierarchy. Decision-making is as limited as it can be,

[passage 44](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) the smart contract network. A simulator wargames out all the options available, giving a real time health dashboard on the status of the partnerships. How is this different from a company? The answer is simple, but startling: a company is (even in a partnership-based enterprise like a big accounting firm) a hierarchy. Decision-making is as limited as it can be, and wealth is concentrated at the top whenever possible. The ongoing debate about CEO compensation makes it clear how unstable this balance is. But at an even deeper level, so much information is thrown away as information travels up an organization that the people at the top are largely looking out through a miasma of lies spun by their staff trying to gain advantage. Employee retention is also a nightmare in hierarchical systems, because smart people always feel that they could do better if they were in charge - and then leave to do so. Although there are a few titanically successful big companies which have formed in the last few years, Apple, Google/Alphabet and Amazon perhaps prime among them, enormous amounts of the value generation at the heart of those companies was done while they were still relatively small. Growth might be necessary for full exploitation, but there’s no doubt, at all, that the structural foundations of extreme wealth generation are being done by smaller and smaller teams as time passes, and those teams are increasingly dependent on external partners to provide the services which permit them to focus on their core value adds: from catering to accounting to cloud infrastructure, the leverage of small teams is dependent on force multipliers. In software the issue is not the sort of manufacturing logistics and supply chain dynamics that I’ve focussed on so far in describing this value network approach. The issue is retaining talent. Really good top flight technologists are rare. They work in a world where a single sufficiently bright individual can cook up an abstraction that automates the work of tens of thousands of skilled individuals, drops the cost of a task (designing a database driven web site) by two orders of magnitude, and six months after it is done there will be fifty imitators building on top of this evolutionary foundation pushing the state of the art forwards again. There is precious little stability, and no resting place. On the other hand, software projects balloon out surprisingly fast. A project started by a team of ten soon becomes a 250 person enterprise, then tens of thousands as it deploys teams to do technical sales or customer support. There are occasional miracles which stay small and simple (craigslist is a wonderful example of this) but, overall, there is intense early stage value generation followed by a ballooning out exploitation phase. Early investors know this. Most well-read startup founders know this. The shape of the game is well understood, which is why fighting over equity is such a bloody, nasty, messy, divisive business in many early-stage companies. Because there

[passage 45](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) is a wonderful example of this) but, overall, there is intense early stage value generation followed by a ballooning out exploitation phase. Early investors know this. Most well-read startup founders know this. The shape of the game is well understood, which is why fighting over equity is such a bloody, nasty, messy, divisive business in many early-stage companies. Because there are only two ways of getting value out (cash and equity) there’s a very limited window to discuss cooperation. The cash is worth too little compared to the equity, and the equity is potentially so very, very valuable that people can sit on top of it like dragons on coin. So the result is a dramatic narrative filled with people being screwed over by double dealing, losing fortunes, and so on. It’s a right proper mess, as we’d say up north. And start ups? So what if we had a much more complex and subtle range of instruments for expressing value contributions to early stage start ups? We discussed decaying equity earlier. That’s an equity variant on demurrage on currencies, a common mechanism used in local currencies during periods of real financial hardship, such as Germany between WW1 and WW2. We’ve also discussed stacked value: some cash and some equity is the standard stack, but that stack could be expanded: cash, revenue share, profit share, decaying equity, permanent equity. The stack has very different risk performance from any of the individual components, and the blend can be adjusted to produce whatever range of incentives is required, from short range incentivization of sales staff, through to long term “write maintainable code, avoid technical debt” incentivization of core technical staff. Similarly, funding relationships could be spread on these axes too. Debt is at one end of a spectrum, going through things like convertible notes, through to non-voting shares and then full equity on the other end. Then you can work your way around lots of potential in-between forms: equity that vests as a company grows (rather than with time) so that employees who create massive growth can go and do it again, rather than being stuck for years waiting to vest for instance. The ability to tie equity to specific contractual tasks or, if not equity, a 5 year revenue share or some other precise instrument of value (“pay by performance”) also seems likely to provide mechanisms which might (in the long run) provide a way for open source software providers to get paid: “if you use our software for commercial purposes within these parameters, we can provide a support package in exchange for...” whatever the terms are that suit. Finally we come to the relationship with our customers. As regulations around equity crowdfunding become more welcoming, the prospect arises that one could finance a company by selling it directly to its first 50,000 users. A proposal, much as would go to VCs, and a prototype get listed somewhere and people rapidly swarm around the idea and buy early shares in the

[passage 46](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) come to the relationship with our customers. As regulations around equity crowdfunding become more welcoming, the prospect arises that one could finance a company by selling it directly to its first 50,000 users. A proposal, much as would go to VCs, and a prototype get listed somewhere and people rapidly swarm around the idea and buy early shares in the company. Perhaps there’s a “value neutral” clause where the initial investors get paid back as soon as cashflow is available, so they are derisked as fast as possible. Perhaps governance structures in addition to the conventional board of directors are created at the same time. These things are all very much within a broad scope of possibility, in that they could be done today with paper contracts and real equity, perhaps using the equity crowdfunding mechanisms provided for under recent American regulatory updates. They could also be implemented on blockchains, or perhaps in a hybrid where the legal instruments are created in the real world, but traded and managed using smart contracts. The bottom line is that there is an enormous creative space here to create something new. What would that “new” look like? Imagine a situation in which a company is founded by a person of good reputation floating stock directly on a crypto-equity market: the first step is essentially an IPO. Perhaps some of the money is raised through loans made against future profits or cash flow, or as direct claims on future payments or products. Already we have tons of possible funding models, all of which put the load on different parts of the company going forwards into the future. Now imagine the vendor side. For the sake of argument let’s assume we need an awful lot of organic cheese for our new company. Perhaps the lead programmer won’t eat anything else. There’s a supply chain for the stuff, and we could work by simply injecting cash into the supply chain. But suppose our cheesemongers are doing OK for cash, and would quite like to defer payment in return for equity. Now they are both vendors and owners: partners, in other words. And if they have similar partial partnership arrangements with their vendors, we are now tying into a complex value network which provides one of our raw materials. Perhaps the programming talent comes from a guild-like company with a broad, complex equity portfolio - they won’t take cash, but only work for equity and board seats so they have meaningful self-determination. Pretty soon what we are left with is companies which do not look like kingdoms, or like governments at all, but rather are organic formations of value around an opportunity (or a vision) with the conflict around equity and cash diffused by the use of much broader and much more risk-tolerant and risk-aware hybrid/compound compensation packages. The economist Ronald Coase discussed the idea that in environments with cheap transfer of information, companies tend to grow smaller. The basic idea is that a company is a

[passage 47](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) of value around an opportunity (or a vision) with the conflict around equity and cash diffused by the use of much broader and much more risk-tolerant and risk-aware hybrid/compound compensation packages. The economist Ronald Coase discussed the idea that in environments with cheap transfer of information, companies tend to grow smaller. The basic idea is that a company is a zone in which decisions are made semi-centrally, and this works because the cost of obtaining and processing information to make a decision is quite high, and the workers are basically “renting” access to that information processing apparatus at the center of the company by accepting lower wages than they would take for the same work if they were freelancing. This, plus insurance that one will get paid during slack periods, get paid vacations and various other things, typically means that employees work for around a third of the day rate they would get consulting/freelancing. The other binding factor is transaction costs. If it takes two days to figure out what is the best new laptop to buy, and 5000 freelances make that decision independently, that’s quite an expensive set of transactions. Most will, in fact, grab whatever is cheap and on their doorstep or on Amazon in 15 minutes and continue with their day: they don’t decide, they default. At a company level, specialized people can drill into the decision further, make a good - a really good - high quality decision and still be left with a huge profit in saved time compared to the freelancers: say 9950 person days profit, in fact. With economics like that, it’s not hard to see how large companies get ahead in information processing terms. The economies of scale are huge, and for companies which are large enough, the ability to ride out the long term cycles in the economy (4 to 8 year cycles, typically, but some longer ones) can provide devastating advantage to large actors. In particular, having the resources to keep making (even small) investments in R&D right through the economic downturn is how many large fortunes are made: as things swing up again, the companies which manage that have huge competitive advantage over the companies that cut back to core operations only in order to survive. The result of this equilibria is that the large companies, to this very day, survive as dominant forces in many ecosystems, long after a Coasian read might have suggested their wings would have been most thoroughly clipped. But they survive, and I am convinced that a large part of that is due to the sheer lack of tools enabling value networks made of small, nimble actors to replicate the kind of cohesion and speed of agreement found in large organizations. a conclusion: back to the calculus. There’s no way to make an argument about the future that is this complex become very precise. There are an enormous number of moving parts, and a lot of this is like interpreting cave paintings: tracing outlines

[passage 48](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) small, nimble actors to replicate the kind of cohesion and speed of agreement found in large organizations. a conclusion: back to the calculus. There’s no way to make an argument about the future that is this complex become very precise. There are an enormous number of moving parts, and a lot of this is like interpreting cave paintings: tracing outlines and forms, and trying to guess what people were thinking. It’s just in this case I’m not looking at 40,000 year old cave paintings, but looking ahead two or three years during a time of literally unprecedented technological change to guess what we will think then, carried over the event horizon by the flow of events, then lost to sight at the lip of the waterfall. I think a lot of people have seen what I am seeing, and expressed their hunch about the future of business in a networked environment in their own language, with reference to the toolset that triggered this realization in them. There are a few basic themes: * less reliance on VC, more reliance on the crowd * better living and working conditions for people on the technological bleeding edge * less tendency for companies to grow and become internally authoritarian * better cooperation between partners * a reduced role for the platform providers in making the rules for everybody else * more meaningful work * possibly less emphasis on moonshots, or at least better outcomes for misses? Some think of that transformation as mainly being a social phenomena, that better social arrangements will naturally cause these outcomes to manifest. Perhaps because I’m slow to the party, and an engineer, I have a rather different cause-effect model in mind when discussing this possibility. To me, it looks like an outcome of using better mathematics. As you may know, my oldest project is the Hexayurt Project, a 2002-vintage Open Hardware project that published free designs for a better class of refugee shelters in 2005, and has become a standard fixture at Burning Man. Thousands are built every year, and the project’s only asset is a single HTML web page and some PDF files and videos. It’s a pretty spartan thing. It works because it uses better mathematics: from Buckminster Fuller’s spherical trigonometry, which minimizes mass, to Edmund Harris’s concave tilings, which minimize waste. The result is gorgeous, beautiful domes that are easy and practical to build from panel materials. They really perform! I know that when you change the math, you change the reality. The same is true for cryptography: the first intuition that two key cryptography was possible has resulted in several generations of cyphers, with different math giving rise to different capabilities. Now we march on homomorphic encryption, and a fundamentally different relationship with truth seems to be in the offing: I can verify something is correct, without ever knowing what the inputs to the process were. This seems like magic, but so did two key cryptography in the early days: one key cryptography

[passage 49](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) with different math giving rise to different capabilities. Now we march on homomorphic encryption, and a fundamentally different relationship with truth seems to be in the offing: I can verify something is correct, without ever knowing what the inputs to the process were. This seems like magic, but so did two key cryptography in the early days: one key cryptography was water, and we were fish, and then discoveries are made, and there’s no dog. My feeling is that blockchains give us the necessary mathematics to change business. We know, for sure, that for large financial institutions blockchains bring rapid change, but mostly in terms of doing what they are doing today much, much more efficiently. We do not know where that goes in a few years, but the basic direction of travel seems likely to be reasonably linear: same entities, same transactions, if only because regulatory pressure will prevent anything too crazy (or mad-weird innovative) from happening. Your bank is not going to turn into a bowl of petunias. On the other hand, in the wild, wonderful world of pure bitcoin, all that exists is cash: no companies, no contracts, no company formations. You have one construct, the “multisig” wallet, which requires many signatures on a payment before it goes, but other than that, you are on your own. It’s not enough to build new complexity and new structures of the kinds that interest me, at least not at scale. Now you have ethereum. My belief is that we can build out a set of constructs which do for capitalism what calculus did for mechanical engineering. I believe that the financial instruments powering most companies are, relative to what is possible with our new tools, horse drawn carts. With good blockchain tools, more ways of sharing value and exchanging risk, we could build things which are so much better than modern companies they look like helicopters beside covered wagons. Our current company law and implementation technology are so crude they cause alienation among natural allies (say the founders of a company) and generally encourage brutal competition among people who would be far, far better off financially if they learned to work hand in glove or like choreographed dancers. All of that unnecessary competition does not make for a more effective business environment, any more than extra lines of code makes for better software. It is not essential competition, competition on the fundamental level with people offering genuinely different products, services or options based on different philosophies or actions. Rather it is the bickering about taxi fares in countries without rate meters - petty, unnecessary friction caused by a lousy, lossy business environment. We are spending enormous effort on incidental competition and petty screw-downs, which are emotionally exhausting, hardening and narrowing, at a time when we most need rapid cooperation, open horizons, and personal flexibility. Incidental competition and conflict waste time, our scarcest and most non-renewable resource. And that’s the vast majority of deals in mainstream capitalism. The tools are

[passage 50](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) lossy business environment. We are spending enormous effort on incidental competition and petty screw-downs, which are emotionally exhausting, hardening and narrowing, at a time when we most need rapid cooperation, open horizons, and personal flexibility. Incidental competition and conflict waste time, our scarcest and most non-renewable resource. And that’s the vast majority of deals in mainstream capitalism. The tools are prices and equity, neither one accurately reflects what we want, and we bridge the gaps with social capital (which is another way of saying emotional labour.) Because the current instruments do not easily allow for equitable sharing of outcomes in little deals, everything is negotiated down to a T, all cornered looked in with flashlights. We just don’t have easy ways of saying “you do well, I do well, and either way we’re in this together.” So into this environment come smart contracts. Smart contracts provide an ultra low uncertainty, automated way of taking simple contracts and making them happen automatically. We agree that if the price of eggs is below £2.50 a dozen I’ll buy 12 on Friday, and they appear on my doorstep if the price is right. It’s that simple. If we build out a new set of much more precise instruments for sharing risk and reward, including things like vest-by-growth stock options for founders and other mechanisms which serve to tightly align interests where the current systems leave such a wide gap that we have to span with trust, social capital, and struggles for cohesion, a process which has spawned an entire literature and culture in Silicon Valley. All of that time and energy is wasted dealing with the incidental complexity and conflict caused by the poor fit - literally the lossy abstraction - between generation of value in dotcom-style companies and the legal frameworks available to entrepreneurs and VCs. I don’t think that the mapping to calculus is precise, of course. I’m also not convinced by the rough outline of capital -> equity -> productive capacity -> cash flow -> profit -> wealth -> capital. I don’t think it fits all industries, and I’m sure that I’m describing social norms rather than, say, a lifecycle of value or the phases of some kind of matter. There might be a general principle to be abstracted out there, but in this instance, the value is only in the parallel: once you conceptualize that it’s possible to align interests basically at any point up that hierarchy, just as it’s possible to match acceleration without immediately matching velocity, everything gets easier. Similarly, dogs do exist. Our mental model of dogs is quite unreal, quite unlike their true nature. Society is out of step with reality. Similarly for the petty cash box: in practice informal management of petty cash probably hasn’t changed much in 600 years while the complexity of the corporate law that contains it has multiplied by many orders of magnitude, from statues written on animal skins to vast tracts of PDF files on government servers. But to

[passage 51](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) is out of step with reality. Similarly for the petty cash box: in practice informal management of petty cash probably hasn’t changed much in 600 years while the complexity of the corporate law that contains it has multiplied by many orders of magnitude, from statues written on animal skins to vast tracts of PDF files on government servers. But to see these things again, and new, requires looking at them as an alien outside, looking in: to see the full strangeness of a million pages of law to manage a buck fifty in change, or keeping canis lupus in our home when it so recently hunted our old and our weak. I think we could build a system to efficiently allocate capital to new ideas which would revolutionize the world using just the smart contract technology we have today. Every few months that pass that ecosystem will become more mature, with more services, more acceptance, and more code written. I think this could pull a lot of capital into innovation, and that would be a good thing. I also think, along the way, we could produce a new generation of tools for forming value networks and precisely architecting the sharing of cost, value and risk (both good and bad) to take a lot of the fruitless and irrelevant competition out of capitalism, freeing companies (and the talented people within them) to compete where their products and services genuinely differ from each-other. I think the result of that could be a much better, and fairer, world. It’s odd to think of radical political change starting with better contracts and reduced transaction costs, but it’s not so strange to think that economics leads politics. Perhaps if we had these kinds of sophisticated tools used to manage most of the value in the economy, fully mature versions might creep into government and help with things like small scale local democracy and precise management of national health services so that public decisions about overall spending priorities are actually reflected accurately in patient care decisions. There is a saying in physics that experimental breakthroughs come from one of three areas: higher energy experiments, more sensitive sensors, or repeating the experiments many more times to see new patterns in the data. Similarly, we typically think that getting a better world starts with fixing government and governance, usually at the policy level. But I think there are very plausible transformations in the core value handling architecture of society which are more or less inevitable, although not so certain in their final forms that they cannot be steered. So I think it is worth starting there, and seeing how far along we can get. And that, ladies and gentlemen, is dog atheism. https://www.google.co.uk/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=dyslexic%20atheist The objective is to explain how inadequate tooling for cooperation leaves us with inefficient competition instead: specifically parallels the formation of multicellular organisms etc. Business-as-symbiosis cannot function effectively without additional constructs for risk sharing Effective risk sharing likely constitutes an evolutionarily stable strategy within market

[passage 52](https://docs.google.com/document/d/1irVQ7bHgWAn5dkf7ucKkiXW_PauTFXB7EnPNzCzKR9E/edit) how far along we can get. And that, ladies and gentlemen, is dog atheism. https://www.google.co.uk/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=dyslexic%20atheist The objective is to explain how inadequate tooling for cooperation leaves us with inefficient competition instead: specifically parallels the formation of multicellular organisms etc. Business-as-symbiosis cannot function effectively without additional constructs for risk sharing Effective risk sharing likely constitutes an evolutionarily stable strategy within market capitalism. THE BIG FINISH complicated stuff about biopolitics, specifically how correct alignment of interests tells us how our friends are, and market capitalism doesn’t provide good mechanisms for aligning interests, so we experience a conflictual society we could still have markets, but with correct use of high order risk alignment mechanisms, we could (at least) rise and fall with our Small World Network neighbours, so that most people, most of the time, experience their business lives as being far more collaborative - right down the value chains. it’s pretty squirrely to make this case, it might have to get done after the second and third case studies are properly tight. small world networks ======= representing value in complex systems like supply chains using smart contracts ========== administrivia ========= There’s a life chat button beside the “Comments” button - turn it on if you want a gossip, there may be some interesting people discussing This piece will end up on the Consensys blog in its final form. I’m just drafting here. It’ll be something along the lines of https://medium.com/@ConsenSys/programmable-blockchains-in-context-ethereum-s-future-cd8451eb421e?source=latest--- or https://medium.com/@ConsenSys/tell-me-who-you-are-258268bf3180#.r3el3lptg of

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End of [242] Dog Atheism: on smart contracts, risk, and value networks, part 4 of 4. Its connections are at the top of this file; the map is https://guptaoption.com/llms.txt.
Read next: next on the same works, [694](https://guptaoption.com/texts/694.md) EB114 – Vinay Gupta: From Lawyer Capitalism To... (2016); the most closely related, [694](https://guptaoption.com/texts/694.md) EB114 – Vinay Gupta: From Lawyer Capitalism To... (2016); his whole career in one file, https://guptaoption.com/story.md.