Why 'Blockchain' Will Disrupt Corporate Organizations

Why 'Blockchain' Will Disrupt Corporate Organizations

Mark Fenwick, Wulf Kaal, Erik Vermeulen

October 29 2018

Many aspects of our world are now built on the zeros and ones of computer code. “Code” forms the invisible architecture structuring our lives. Driving this “Digital Transformation” is an interconnected series of technological innovations over recent decades that have re-shaped social and economic life. Consider the impact of (i) cheaper, smaller and more powerful digital hardware; (ii) global communication networks and mass connectivity; and (iii) cloud-based storage of massive amounts of information and automated algorithms that process that data. Moreover, multiple emerging innovative technologies in the fields of robotics, AI, machine learning, nanotechnologies and distributed ledgers (i.e. blockchain) are already bringing further change.

A considerable amount of interest surrounds these technologies, particularly in a business context. After all, these technologies create multiple new business opportunities and have enormous implications for how businesses organize themselves and operate. In our new paper - Why “Blockchain” Will Disrupt Corporate Organizations: What Can Be Learned from the “Digital Transformation” - we describe how digital technologies are transforming corporate organizations. In particular, we suggest that new digital technologies are driving the emergence of “flatter,” more decentralized forms of business organization. As such, the “old world” in which closed, centralized, hierarchical organizations dominated is being disrupted.

So, how are new technologies disrupting corporate organizations? The paper first considers how the digital transformation has led to the emergence of so-called “platform” companies. Examples include “social” platforms (Facebook, Instagram), “exchange” platforms (Amazon, Airbnb, Uber), “content” platforms (YouTube, Medium, Netflix), “software” platforms (Apple iOS, Google Android), or “blockchain” platforms (Ethereum, EOS). These platforms utilize networked digital technologies to facilitate transactions of different kinds. For example, economic exchange (Amazon), the transfer of information (Google) or “simply” connecting people (e.g., Facebook). In each case, the platform makes possible interactions between creators and extractors of value and generates wealth for the owner-controller of the platform.

But there is more to platform companies than simply utilizing network technologies to facilitate social and economic interactions. Many of the companies mentioned above seem to organize their internal operations in a flatter and a more inclusive way to enable collaboration amongst multiple stakeholders. By doing so, they believe they can maximize opportunities to deliver constant innovation in platform services and functionality. In hyper-competitive global markets, a flatter and more open organizational culture is seen as conducive to greater employee satisfaction and improved business performance.

Since blockchain technology can be viewed as a next step in the “digital development” of corporate organization, the paper then discusses the main features of blockchain technologies and smart contracts and explores why these technologies are so potentially disruptive in a business context. We then introduce several examples of such blockchain-based business organizations, as well as possible future developments.

A particularly exciting experiment with blockchain technologies was the decentralized autonomous organization or “DAO” launched by Christoph Jentzsch, the co-founder Slock.it in Berlin in May 2016. The governance structure of the DAO was built entirely with software, code and smart contracts and ran on the public decentralized blockchain platform, Ethereum. This automated structure was intended to give “participants” in the DAO direct real-time control over contributed funds and where such funds would be distributed. The DAO didn’t have any physical address or directors, manager or employees; it was “merely” computer code. To be sure, fundamental flaws in the DAO code made it possible for hackers to transfer one-third of the total contributed funds to a subsidiary account. This, and other technological limitations meant the end of the initiative, but the vision of a different style of decentralized organization is powerful and influential.

The implications for regulators and other policymakers seem apparent. A disconnect is emerging between traditional regulatory models based on closed, centralized and hierarchical organizations and the flatter organization of contemporary many businesses. It, therefore, seems essential to deepen our understanding of these new organizational forms as a necessary pre-condition to designing new regulatory models more suited to a digital age. In short, regulators need to better align regulatory arrangements with the business realities and needs of firms today, and jurisdictions that can do this seems well-placed to enjoy enormous benefits.

 

 

 

Authors

Real name: 
Mark Fenwick
Real name: 
Wulf Kaal
University of St. Thomas School of Law