# Mic audio: Coase's Blockchain: can equity crowdfunding accelerate past Venture Capital? > One source from the archive of Vinay Gupta's work at guptaoption.com, as plain text for AI agents: [299]. 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/.md. This file's connections are below, then his passages. ## Where this source sits - Source: video, 2015-06-02 (YouTube upload date), https://www.youtube.com/watch?v=R44AdHVWPmk. Text: automatic captions, partly corrected - 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): Transaction-cost theory under rich data capitalism and community finance. - Career works it belongs to: - 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... - People's Cloud architecture and futures in 1000 words (2013): Blog essay: the data center is doomed, its efficiency is bought with centralization and monitoring, and... (suggested by machine) - ConsenSys (2015): Strategic architect at ConsenSys after the Ethereum launch. (suggested by machine) - 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... (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... - cryptographic applications: Cryptography applied: from 1990s cypherpunk practice to identity cards, Ethereum and Mattereum. (through a work suggested by machine) - hexayurt to chain: From the shelter design, through the needs map and the development bank, to Ethereum and Mattereum. (through a work suggested by machine) - Topics: Coase — transaction costs and capital formation (100%) - Distinctive terms here, against the whole archive: equity crowdfunding (4 here; 14 sources in all, earliest dated 2014); venture capital (4 here; 26 sources in all, earliest dated 2002); refugee housing (1 here; 2 sources in all, earliest dated 2006); Coase (2 here; 18 sources in all, earliest dated 2009, 2 undated); transaction costs (2 here; 35 sources in all, earliest dated 2009); AML (1 here; 13 sources in all, earliest dated 2015); DNS (1 here; 23 sources in all, earliest dated 2006); certificates (1 here; 26 sources in all, earliest dated 2006); KYC (1 here; 27 sources in all, earliest dated 2015); digital signatures (1 here; 30 sources in all, earliest dated 2006) - The earliest dated source in this archive for (undated sources may be earlier): AML - Importance: core-text score 0.83 (1.00 is the top), number 14 of the 729 sources it scored, the research build's measure of substance, importance and innovation - Related sources: - [296] [Vinay Gupta - Transparent Society - Crowdfunding on... (2015)](https://guptaoption.com/texts/296.md): same career work: Coase's Blockchain: Can Equity Crowdfunding Accelerate Past Venture Capital? - [706] [Blockchain Beyond Bitcoin - with Vinay Gupta | Virtual... (2018)](https://guptaoption.com/texts/706.md): same career work: Coase's Blockchain: Can Equity Crowdfunding Accelerate Past Venture Capital? - On the same works, just before: [379] [Blockchains, databases, reification: are bottom up... (2015)](https://guptaoption.com/texts/379.md); [380] [A new way to describe blockchains (2015)](https://guptaoption.com/texts/380.md); [301] [Ilaria R. and Vinay Gupta discuss the Ethereum Project... (2015)](https://guptaoption.com/texts/301.md) - On the same works, just after: [153] [Financial Cryptography: Coase's Blockchain - the first... (2015)](https://guptaoption.com/texts/153.md); [298] [Raw footage of Transparent Society mic audio soon (2015)](https://guptaoption.com/texts/298.md); [296] [Vinay Gupta - Transparent Society - Crowdfunding on... (2015)](https://guptaoption.com/texts/296.md) ## 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: Mic audio: Coase's Blockchain: can equity crowdfunding accelerate past Venture Capital?, video, 2015-06-02, https://www.youtube.com/watch?v=R44AdHVWPmk; in Vinay Gupta's archive at guptaoption.com, source [299], https://guptaoption.com/texts/299.md. Other speakers' passages are removed, so there can be gaps. ## Passages [0:00](https://www.youtube.com/watch?v=R44AdHVWPmk&t=0s) that you're going to share in the secret sauce of ethereum please welcome the to the stage thank you all right that's why it's good so can everybody hear me okay all right good so um let's get cracking lot to cover so um this is the title of the talk did anybody in the audience know who Ronald Coase was no okay uh p h got the Nobel Prize for economics in 1940 and uh K's question was why does the company exist as an institution right theoretically if markets are more efficient than command economies because of better distribution of information why do we then recreate little pockets of command economy in the form of a thing you called a company and understanding why the company exists is a critical thing if you want to start companies or operate companies because the question you have to ask is well why are we doing this rather than having a market of lots of individual actors and Co says the reason that we don't have seas of contractors we've got structures like say IBM is because making good decisions is expensive so last time you bought a telephone or a television or a car you probably spent like two days on the internet looking at reviews trying to make a decision right familiar experience all of that is a cost that in a company is made by purchasing same thing for deciding strategy if you're a small business person you spend a ton of time worrying about strategy and all of those costs in a large company are amortized across the whole Company the company serves to make decisions and then amortize the cost of the decisions across the entire structure um and this is all about essentially transaction costs now move on to venture capital right Paul Graham famous assay blacks Swan farming what they basically say [1:58](https://www.youtube.com/watch?v=R44AdHVWPmk&t=118s) is Venture capitalists have no idea what will or won't work we can't tell right we are in the business of guessing winners but it turns out that our ability to successfully predict is less than one in a 100 of 100 companies we fund 94 fail 10 will make about 10 times what we put into them and one in about a thousand will make us a ton of money 1,000 to one returns are higher but we actually have no what could telling which is which so we just fund everything right so even with their very large sample size they're unable to successfully predict what will or will not succeed and if this is true for Venture capitalists how much true is it truer is it for entrepreneurs as a venture capitalist you have an N of maybe 600 or a thousand as an entrepreneur you've got an N of two or three so all entrepreneurs are basically guessing that their thing might work with totally inadequate evidence and no legitimate right to assume their guess is any good because if the VCS can't can't tell how the heck is the entrepreneur supposed to be able to tell right we're in an environment with extremely scarce information about what will or will not succeed and even the people with the best information in the world are still just guessing right the whole thing is just guess word so history of blockchains in a nutshell and I will bring all of this back together in time um 1970s the SQL [3:24](https://www.youtube.com/watch?v=R44AdHVWPmk&t=204s) database was basically a software system that was designed to make it possible to do computation using tape storage you know how in databases you have these fixed field lengths you know 80 characters 40 characters all this stuff it was so that when you fast forwarded the tape you knew that each field would take 31 in and you could Fast Forward by 41 1/2 ft to get to the record that you needed next the entire thing was about tape you get over to the 1990s we invent the computer network at this point we're running everything across telephone wires there's basically this is all pre ethernet it's really really early stuff and then you get ethernet and standardization of DNS in the web second generation of Technology the bridges between these systems never worked right anybody that's tried to connect to corporations across a database knows that it's just an absolute nightmare you get hacks like XML EDI or Json or soap or anything like that but you always discover that the two databases have different models of reality and when you try and Inter connect them to each other in the middle you wind up having to write a third piece of software yeah uh where are we n squ problem so the other problem is that if we've got 50 companies that want to talk to 50 companies you wind up having to write 50 squared interconnectors which results in an unaffordable economic cost of connecting all of these systems together so what you wind up with is a hub and spoke architecture where one company acts as the broker everybody writes a connector to that company and then that company sells all of you down the river because it has absolute power as a result actually computers have had very little impact on the structure of business even though they've brought the cost of communication and the cost of knowledge acquisition down to a nickel right this is where we get back to co the revolution that Co would have predicted computers should bring in business hasn't yet happened and my thesis is that blockchains will turn out to be what it takes to cause that to run so the blockchain regardless of all the [5:31](https://www.youtube.com/watch?v=R44AdHVWPmk&t=331s) complicated stuff that you've heard about it is simply a database that works just like the network a computer network is everywhere and nowhere nobody really owns it and everybody cooperates to make it work all of the nodes participate in the process and they make the entire thing efficient blockchains are simply databases updated to work on the network and those databases have some different properties from the databases that were made to run on tape um they're decentralized you can't edit anything you can't delete anything the history is stored perfectly if you want to make an update you just republish a new version of it and to ensure the entire thing has appropriate accountability you use digital signatures it's not nearly as complicated as The Tech Guys in blockchain land will tell you right yes it's it's as complicated as the inside of an SQL database all of your companies run SQL databases none of you really know how they work it's going to be just like that with blockchains two years from now you'll forget word blockchain and you'll just hear database and it'll mean the same thing probably how am I doing for time by the way there's no clock you're good 10 minutes 10 minutes oh that's great fantastic right so we get to this thing called a smart [6:42](https://www.youtube.com/watch?v=R44AdHVWPmk&t=402s) contract has anybody heard of smart contracts okay not bad so again you'll see lots and lots and lots of complicated rhetoric about smart contracts a smart contract is a little computer program that is stored on a blockchain you can store them in other things as well but pretty much all you're going to hear about in the next few years smart contract on blockchains we all agree what the program is because we can all get a copy of it out of the database we all run the program we all agree what the output of the program was that program is essentially a smart contract all of this stuff is completely defined by the non- editability of the database plus the digital signature so in the same way that you've got paper documents they're theoretically non-editable because everybody has a copy they're all sitting on the same blockchain we all know who said what because we got a digital signature from everybody it's a really nice clean easy convenient way of doing business it's just not complicated right what you get out the far side of this if you get it right a democratization of the governance of [7:46](https://www.youtube.com/watch?v=R44AdHVWPmk&t=466s) companies now this doesn't sound like a big deal but who feels a little disempowered by their phone company right who feels a little disempowered by Facebook or their electricity company or any of these other things right we're all aware that something is profoundly wrong in our relationship with companies because they basically just seem to be farming us and it it really doesn't feel good my thesis is the reason that that's happening is because venture capital is just a useless Institution for producing what people want right what you have is a bunch of people whose job it is to guess about the future and a bunch of assets are making those guesses with and the problem with that is that those people are rich already and there interests are very much unlike the users of the stuff that they're you doing already right there's a fundamental disconnect between the investor class and the users so what happens if things like Facebook were funded by tens of or hundreds of thousands of people who put in $10 each at the start of the process yes you still get 90% failure uh if you happen to get a small success you put in $100 you get a th000 back it's not lifechanging for anybody if you put in a $100 and the company becomes a huge success you might get 20 grand back that's quite nice but it's not enough to create a professional investor class the real payoff however is when you get to corporate governance because right now we're in a position where relatively small numbers of people are making undemocratic decisions that affect every part of our Lives because the owners of Facebook can change the terms of service in such a way that you lose contact with everybody you ever knew right if you manage to get booted off Facebook Google Twitter simultaneously you might as well be dead so what happens if we go through and imagine shareholder democracy based on a crowdfunding platform 100,000 people put their money in to start the company the company runs quite successfully those people are in control of the company and they use software to run elections to select a board that they like at this point you get a substantial overlap between the owners of the company and uh the users of the company so you get a convergence of interests between the owners and the users the increase in shareholder value is no longer measured in purely financial terms because the shareholder and the user are the same person to at least a basically representative level now the problem with doing this kind of stuff oh and I should say the [10:16](https://www.youtube.com/watch?v=R44AdHVWPmk&t=616s) software to do this stuff is being used in Europe by the pirate party and a few other places um the problems with doing this kind of stuff are almost entirely Regulatory and bureaucratic if I come [10:28](https://www.youtube.com/watch?v=R44AdHVWPmk&t=628s) and I give a list of my shareholders and it's 100,000 people WR and we don't actually have real names for half of them clearly this is an unacceptable situation for most authorities right your financial services management type entities will just have a cow so what is required to make this kind of stuff work is a very solid lock on the identity of anybody that's participating in crowdfunding for things like kyc AML what's required is a little bit of flexibility on the part of The Regulators to say these people are actually legitimate shareholders we will allow them to invest we need perhaps something like the US institution of the accredited investor but brought down to a level where you know you're allowed to crowdfund because you signed some paperwork that said you're not an idiot right but building a new generation of companies that is genuinely responsive to what Ordinary People want and the rapidly changing conditions of the market in an environment where we know that Venture capitalists are basically just rolling the roulette wheel dust like everybody else is makes me think that there is a new generation of capitalism coming that will be empowered by blockchain Technologies good so what a blockchain gives you is [11:36](https://www.youtube.com/watch?v=R44AdHVWPmk&t=696s) the ability to unify the bureaucratic structures that make every part of this process possible from the initial raising of the funds through to moving of the money through to giving out the share certificates through to voting based on one of those shares through to transparencies for the company so you can understand exactly what's happening all of this stuff can be stored on the same common database so you don't have 37 different systems you have a single structural backbone that governs every aspect of the company's governance including the disposition of its shares and these Technologies don't exist yet but I would estimate we'll have prototypes of this kind of stuff in the wild from 20 or 30 different vendors by the end of this year as the platforms become available lots and lots and lots of people have all seen this is coming and will'll be rapidly building it out it's the first actual competition Venture Capital model has had really since it was started what about the problems right [12:37](https://www.youtube.com/watch?v=R44AdHVWPmk&t=757s) part of the job of a VC firm is to know an enormous amount about the company they're about to put $2 million into and in a Coasean sense the company exists because it amortizes the cost of making a decision so the notion is that rather than having a punch of extremely deep expertise you have a bunch of people making tiny little bets where they can afford to lose which mean they need much less information if they do want high quality information they can put 50 each into an enormous bucket and they can pay for the information through analysts but I would say the basic driver for this is going to be small bets on limited information because after all say it with me VCS are gambling if they could predict what would be successful they would not be funding 90% failure so what about the transaction costs right the blockchain is for reducing transaction action costs that's what it does right um uh the um John M matonis was up here yesterday said that they' moved $300 million of transactions through Bitcoin in the last was it month might have been week was it a day 300 million moved in a day and it cost the people that moved that $300 million6 pound uh $6 essentially transactions are free on blockchains you can imagine taking all of the enormous amount of gbin that you get when you're trying to do something like invest at a company and wiping out the transactional costs Wipe Out the transactional costs change the attribu the uh aggregation of information and what you get is an entirely new cast of businesses with a different governance a different ownership and a different Democratic relationship with their users and the general public and I would consider all of this to be inevitable as of about two years ago I think the news will hit the papers in the next six months to a year [14:25](https://www.youtube.com/watch?v=R44AdHVWPmk&t=865s) um once we have this stuff in place right it should be pretty obvious that if you could do this for Venture Capital you can do it for anything right I can't think of a single industry that has a good representation a good mapping between the needs of the users the needs of the owners and the needs of The Regulators the way that we operate in our Western society that is that these groups are all in opposition to each other and most of what's keeping them from working together is bureaucracy and paperwork if you use blockchain technology as a lightsaber to slice through the bureaucracy in the paperwork while still keeping accountability you could create a situation where we largely unify owners users and governance of systems with a single shared set of common interests so this is something like the mandon co-op model but inside of a straightforward Market capitalist uh perspective you get decentralized ownership because we chose to spread the risk a lot thinner and the result is you get companies that genuinely represent the needs of their users because the users are the owners right and I think that this is a kind of participatory capitalism that is really only one little nudge to The Regulators way if you are all in favor of participatory capitalism where it's possible for ordinary people to do a little bit of enter Capital as a hobby and maybe end up owning a slice of a public utility let your Regulators know it's a good idea because that's the only thing standing in the way the technology is ready and I think most of us agree that a capitalism which increases the number of people who are participating in governing companies by a factor of say 500 would be a better capitalism more Mark market efficiency better representation of the needs of users and Company decision making um and that's it thank you very [Applause] [16:15](https://www.youtube.com/watch?v=R44AdHVWPmk&t=975s) much okay sure I'm here take the all right so um what's going to make this happen I love that this is inevitable as of two years ago papers will figure it out in two years from now and so forth so how many thank you for sharing that with this audience here how many people are acting on this concept of unification of users owners and managers of systems how many people in the world do you think are are kind of in with you keeping up with your your thoughts there and are actively building out systems around those Concepts well I think Equity crowdfunding is pretty well accepted as being the next thing right and a lot of people are looking at million people 100,000 oh it's hard to know hard to know I mean um you do Equity crme funding stuff do you want to take a gas okay okay so we don't know right but certainly an enormous number of companies and once you start Equity crowd frontting as an actual Enterprise look at the size of Kickstarter I mean Kickstarter moved I don't know some many billions of capital into small projects and if Kickstarter was allowed to issue equity rather than simply issuing products I think it's pretty clear that that would scale very very quickly um once you put blockchains underneath that the regulatory overheads should go way down because they're just much more secure and easy to use right um and I think that that is largely waiting on ethereum to ship a platform which people can then come along and build that stuff on top of cheaply but we are by no means the only game in town for that kind of Technology okay now a lot of conference um yesterday and today has been around David and Goliath could dance and Lage consumer data not disruptive Tech but enabling Tech um maybe I'm missing it here but this seems to be so so basically dealing with the not so much talking about the discontinuity what what I hear you saying here is you're building in the future you're you're basically saying if the gles can't keep up Tom know their history well I mean not everything can be Equity crowdfunded okay right so if you think about the kinds of things that are crowdfunded mostly they are consumer junk right junk they're toys they're fun things they're easy to relate to I think that for example Equity crowdfunding large scale Motorway construction is probably not happening difficult right Equity crowdfunding uh startups that need a certain amount of momentum before people understand what they're for I [18:45](https://www.youtube.com/watch?v=R44AdHVWPmk&t=1125s) think you're still going to need VCS for because if you can't sell it to the crowd you can't raise the capital so you're still going to have a a very substantial role for VC to fund the things that the crowdfunding markets are unable to corly value right but it's a much more specialized role um because right now if you can't get VC you can't go anywhere and what you get is VC will get 30% or 60% of the market Equity crowdfunding will come in for another x% it'll start small and it will get however big it gets so you end up with this kind of mixed Ecology of what are these things running parallel to each other right most of the people who come to these kind of conferences are working from a commercial perspective yes ethereum is a nonprofit yeah right we give give away all of our software we want people to have these tools so I can stand up here and say it will run alongside of everything else whereas if I had investors to answer to I'd have to tell you that it will replace everything else right I'm perfectly happy with an ecology that has all these things in parallel but what you get is the pressure for each thing to specialize and perform better which produces better overall Services now I believe in uh fundamentally I believe in alignment I love the unification that you're talking about um it's seems to me that the the digital winners the Facebook Apple Amazon and Googles and so forth are winning because they're driving the economics of their ecosystems and it seems that um the you know the Uber AirBnB are also going after that it seems that for a large measure the non-tech traditional businesses not even thinking that thought mostly and they don't know how to get from where they are to that place y do does your thinking and your intellectual property and what you're giving to the world does that help them address that on any level or you saying basically they're not going to win the ecosystem economics argument okay so because it's kind of a macro you're dealing with the Next Generation coming through well so what's St Uber as example right how different would Uber be if it was owned by either the riders or the drivers good question right good question my my suggestion is either the writers or the drivers would produce a service which was fundamentally much more humane right you know the kind of atomization of Labor that you get in say the warehouses that uh Amazon is operating built on top of an even worse treatment of Labor that You' SE in the Chinese factories that produce so much of what Amazon produces I think these are the kind of things that Ordinary People are actually kind of against and we them behind layer [21:15](https://www.youtube.com/watch?v=R44AdHVWPmk&t=1275s) after layer after layer after layer of corporate PR except that some people will choose it certainly people will never choose I don't think to be exploited but some people will choose to work in more high pressure environment some people would choose to you know so people will still in these um uh sh shareholder groups you know the owners combined with users people will choose to be in different ones oh I I absolutely agree but I think where you will see the change is that if you owned a tenth of a tenth of a percent of something like Amazon and we're actively involved in a democratic structure where all of the people in that company voted for how the company would behave I think you would see real shareholder pressure to improve standards of living for workers I agree with that now the last question because I'd love to talk to you afternoon but we're not going to be able to do that we have that another time is that you've chosen to actually um I I not heard of Co so I appreciate that because I'll do some more reading about him and so that I think that's a a good contribution to the discussion the um the guy to read is Yokai bener who wrote A Thing Called koses penguin which examines free software uh and how free software production is en Campus inide of Coase economics there's a book called The Wealth of networks which is the the Crux and also Robin chases upcoming group book Pi Inc wow thank you Pi Inc networks CO's penguin just send me send me email I'll send you stuff beautiful thank you that's great sorry anyway you decided to to take it say one why do do corporations emerge why not individual contractors you're taking this down to shareholder democracy isn't another way to get out the same thing which is if there's something in it for me I'm going to care more and so forth to come from the indiv out and my transactional ability in the transaction why is it better to come at it from the ownership maybe I never get the ownership because maybe your vision for whatever reason stalls or doesn't happen but by God if my data is really my data I could demand to have a cut of the revenue so why well so you could certainly approach it on that side okay but you and well I mean got 15 minutes right so let me give you two versions of the story about consumers and and data okay so there's an outfit running on top of ethereum called provenance Provence Provence Provence HQ on Twitter and Provence wants to do supply chain tracking so you could take your genes and you could track them all the way back to the cotton because every transfer that was made was done on of blockchain so you [23:45](https://www.youtube.com/watch?v=R44AdHVWPmk&t=1425s) can actually see the full history of everything that you own right back its raw materials in their vision of the future interesting right and imagine the pressure that that would give us the negotiating power that would give us for dealing with companies similar similarly right um although on blockchains there's basically no privacy you can always put encrypted data on a blockchain so you put all your public records onto the blockchains and then you selectively reveal keys to your doctors or your car hire company or whoever it happens to be and in those kind of models the large companies simply never get to amass these enormous dangerous databases right um because when they need access to your information their app talks to your phone your phone gives them a one time pass they go and get the data the one time they need it and then immediately afterwards they're legally contracted to forget and that becomes workable if we can do micro payments because they say look without data it's 85 cents and with data it's free and you say fine I don't mind paying for the service but you're not going to monitor me and all of these businesses are currently operating using targeted advertising models simply switch over to be subscription services like WhatsApp rather than Facebook right WhatsApp charges you a dollar a year yeah and then it doesn't kill you with that yes yes everything can work that way if you've got good enough payment backp well I tell you I certainly would like to talk to you um all afternoon I do are you staying this afternoon H unfortunately got take a fight in about an hour okay and what was your email address uh hexayurt at if we go back aside prob do that yeah there go no maybe it's the other one the other back no no different deck or something anyway no okay they're pulling it back up uh and if you want to write laugh uh punch hexayurt into your search engine of choice and you'll see my other activity Refugee housing okay all right so hex fd.com okay well if we could if we could get that email address back up on yeah there it is there we go it.org I think I put the wrong email address up there well anyway I'm easy to find Vinay Gupta. hexayurt you'll find me okay hexayurt gmail works okay listen I v I vote for you whatever you're whatever you're going for you were great thank you very much for sharing your thoughts it was really powerful thank you thank you very much thank you --- End of [299] Mic audio: Coase's Blockchain: can equity crowdfunding accelerate past Venture Capital?. Its connections are at the top of this file; the map is https://guptaoption.com/llms.txt. Read next: next on the same works, [153](https://guptaoption.com/texts/153.md) Financial Cryptography: Coase's Blockchain - the first... (2015); the most closely related, [296](https://guptaoption.com/texts/296.md) Vinay Gupta - Transparent Society - Crowdfunding on... (2015); his whole career in one file, https://guptaoption.com/story.md.