Editor here again, picking up part 2 of the crowd funding thread. In the previous post, Vinay Gupta laid out why Coase's theorem didn't predict the tech revolution quite yet - in a nutshell, we lacked some critical components, of which one was the blockchain, being that invention that allows a dynamic membership multi-party signature (DMMS) to create a single entry that rules all others, the part I called triple entry.
But is it the only missing component? No. Actually, there's another component we are missing, and it is this: the ability to acquire the capital to build what we need and want. That hinted at, let's continue...
Does everyone have a clear idea what Equity Crowd Funding looks like?
You get a bucket, everyone puts in 20 quid, everyone gets a tiny share in the company, if the company turns out to be the next eBay, you get 2000 quid back.
"Eh? Huh? What? I thought you never got anything back from most of the crowd funding sites?"
Aha! *Equity* crowd funding! Equity!
In Regular crowd funding, you put the money in and nothing comes back. In *equity* crowd funding, you put the money in and a tiny share comes back. And you can actually make some real money!
"I just missed the equity word."
Now, *equity* crowd funding is obviously a good idea. It is very very very hard to find any rational argument as to why equity crowd funding is a bad idea. The only objections you will typically see is, what if the public get conned. And that, coming from governments that actually operate national lotteries.
Right? Pardon? What are you talking about?!
You allow people to sell cigarettes, what are you talking about, "The public will get conned!" You're mad!
So, there are some quality control problems with equity crowd funding as a model. You need some way to communicate to people the level of risk in an appropriate way. You might want to talk about reputational rating systems. A Moodys or a Standard&Poors for equity crowd funding might be a good idea. There's all kinds of stuff you might want to do.
The basic idea is obviously sound. You sit there with a credit card, you swipe it, you own a tiny little share in a company that's manufacturing some weird looking device that you clip to a golf club, and if tens of millions of people like it, you make a lot of money back.
It's just not done.
Right now, the regulatory frameworks around equity crowd funding cripple it, and this is I think the key fight for the development of technology in the 21st century.
If we win equity crowd funding, I think we get pretty much a flying car each. And if we lose on equity crowd funding, I think we are potentially on a long cycle of decline, into a kind of neo-feudal patent-barren landscape.
Back to me. This pretty much nails *what* equity crowd funding is, and suggests the transition as to why it is going to be a killer app on the blockchain. (For the *why* of it you'd have to listen to the whole talk, and for the inter-relations you'd have to see a whole lot more stuff.)
The interesting thing, once we've got that understanding, that position, is to question how it will develop. We're in a race, or if we're not in it, we're watching it. At a simplistic level, it is a race between existing players trying to deregulate conventional securities issues fast enough, versus new players (we've maybe not seen yet) creating it fully openly on the blockchain.
It's not clear who is going to win. OK, what is clear is that the people win because we win more stuff for less money; but it is not clear whether we the people win all the way, or only a partial victory.
Do we get a flying car, each, or do we enter neo-feudal patent-barren secular decline?
Where are you on this race? Are you ready to bet?Posted by iang at June 9, 2015 09:24 AM