The State of Wyoming is the most aggressive in the United States when it comes to blockchain legislature. It already has set forth a number of laws that are friendly to cryptocurrency and blockchain companies.
Now, the state is about to open up an entirely new landscape.
A bill has passed the Senate that will recognize Decentralized Autonomous Organizations (DAOs) as companies. It now heads to the House of Representatives.
If approved, this would be enormous. Effectively, this would make Smart Contracts responsible entities as opposed to companies where centralized control is under one person. The decentralized nature of DAOs make then hard to deal with in the present legal framework.
Also, it would go a long way of establishing "Code as Law". This would validate Smart Contracts as legally binding. The way the court system works is, as more lawsuits are ruled upon, the prior cases end up establishing precedence. This becomes part of the legal domain. Other attorneys use previous cases as support for their existing arguments.
Ultimately, it is not really the law that is the law but, rather, the interpretation of said law through different lawsuits filed over a long period of time.
What is so powerful about this bill is that is also sets the path to changing the business structure, at least in the State of Wyoming. At present, the common business entity is the corporation, which operates from a governance model that is established in the Articles of Incorporation. This creates the framework for the organization in terms of control. In other words, it spells out what humans are responsible for what.
A DAO does not operate under this premise. The governance is spelled out in the coding in the Smart Contract, removing humans from the process. When situation arise, the exercise by individuals is done according to what is laid out in the code.
Eventually, we could see a situation arise where the Smart Contract provides governance to non-humans. The entire organization is fully automated, complete without human intervention.
Legislation such as this, if it makes it into law will start to insulate cryptocurrency. Many still question if governments such as the United States Government ban cryptocurrency. Obviously, there are two parts to this equation: the technical and the legal.
Governments can pass any law they want. However, the feasibility of enforcing said law becomes the issue. From a human perspective, if everyone ignores it, like Cannabis laws in the U.S., it makes it hard. Then there is the technology. As many point out, Bitcoin, as an example, cannot be shut down. Thus, the law is in conflict with the technology.
Then it becomes a question of who would win?
Nevertheless, a law in Wyoming that legalizes DAOs and accepts the Smart Contract as the governance mechanism helps to protect cryptocurrency. The reason for this: the DAO requires that to operate. In many instances, these entities are formed around cryptocurrency. Thus, in my mind, even though I am not a legal professional, it legitimizes the technology of cryptocurrency simply as a part of blockchain operation.
The key is what happens after this bill becomes law. Do other states follow? How rapidly does this concept spread. We already see other areas looking to tap into what is happening in the world of crypto and blockchain. The City of Miami has made news since its Mayor has been very open about his desire to see the city embrace Bitcoin while also attracting blockchain companies to the area. This is a concept that he wants to push all the way up to the state level if he has to.
This ultimately sets up the framework whereby blockchains themselves are recognized as companies. After all, ones like Bitcoin and Hive operate in a manner that stems from the code. That lays out the governance model. There is no foundation or entity that is at the point, making decisions on behalf of the community.
Here is where we see the foundation for the answer to the wealth inequality that is plaguing most nations. Under the current system, accredited investors gain a great deal of control simply through exclusion. Thus, the average person is locked out of many of the early gains.
However, and I am taking some liberties here with the analysis, this all goes away with decentralization. When decentralized exchanges are offering parts of these "companies" on the open market, anyone from any part of the world can get involved. Depending upon the purpose they serve, the customers or users become the owners.
As the entity grows in value over time, the users are enriched financially, not Wall Street hedge funds or upper level executives. Unlike what we now deal with, DAOs are inclusive. They are open to anyone. Hence the potential for gain is spread out to the masses. It provides a situation whereby people's success is determined by the decisions they make, not the access they have.
In hindsight the corporation is a double-edged sword. It served to help unleash hundreds of trillions of dollars in economic prosperity over the centuries. By altering the liability framework as well as the ability to raise capital, it set off the greatest period of growth in human history.
There is also a downside. As we can see now, the power of these entities has grown where they are rivaling the size of government. They also are not participatory whereby anyone can have a say. Instead, they are run (governed) by a few powerful people which creates the situation just described.
It looks like the DAO could be the replacement for this system. Over the next few decades, corporations will die off as a new business structure takes over. This will be accelerated if the capital raising process is through cryptocurrency. If this is one of the major capital markets that businesses need to tap into, it is likely the crypto community will demand a company be a DAO.
In short, we could see a time when people trust the code more than they do people.
If that happens, we might look back and point to a tiny bill that passed through the legislature in Wyoming as the starting point.
People often overlook how the smallest actions can have a profound impact decades down the road.
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