Why blockchains?
Finally, we wanted to share the results of our "blockchain litmus test" by asking if the same solution could be achieved without the use of smart contracts.
The naming API obviously does not require blockchains: Until blockchains are used as authenticated ledgers for company names (in the same way ens.domains is an authenticated legder for .eth domain names) our solution is entirely database-based (despite the absence of an official public database!).
The spawning of a new Series by the Master could also be done without blockchain: a Stripe payment could be made to OtoCo, with an API that feeds into an online document generator which could be emailed to user for digital signature via a DocuSign-type solution. Once signed, OtoCo LLC as the Master would be notified and the Series would be validly formed.
However there are a number of reasons why we believe blockchains are superior to a more centralized, approach:
  • PRIVACY: Any card payment method would be surveilled: the payer would be known and assuming payer is also first Member, the company would not be private up to the point the Member choses to attest to his/her identity.
  • LATENCY: Speed-wise, stringing together a card payment module with an API with document creation software that requires a digital signature is very different from a solution in which a company is automatically spawned by simply signing on blockchain.
  • CENSORLESS: Any centralized approach would not be censorless, in a sense that anybody can now own a company and be an entrepreneur. Flash companies have the potential to unleash a wave of entrepreneurship and cater to the under-entrepreneured who have no or limited access to limited liability protection.
  • AUTHENTICATION: A fiat payment to pay for a new LLC formation creation has no equivalence to the proof of ownership resulting from using a digital wallet, which collapses activation and ownership into one event. As a ledger of ownership, in particular transferable title such as company stock, blockchains are superior to centralized databases.
  • PROGRAMMABLE EQUITY: In further iterations, shares can be made to “listen” to governance parameters and enforce hardcoded rules such as quorums, qualified majorities, etc. Multisigs over tokenized share classes can help prevent rights of first refusal breaches and other clauses which the analog legal world can only ever address post-factum.
  • FUTURE-PROOF: Perhaps most importantly, onchain company formation is future-proof. By using blockchains both as a ledger and rails for transfer of ownership of “smart-contractified” company equity, legal containers can easily be spun up that facilitate capital formation and help coordinate multiple stakeholders around a common project.
The world has managed without blockchains and smart contracts so far to get companies formed, funded and governed. However, blockchains have the potential to do this cheaper, faster and better and lead to a whole new “theory of the firm”.
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