This article was originally published in the 2019 Japan G20 Summit publication .
When I was a kid we had our own form of currency. My friends all traded baseball cards and pogs, we traded hot wheels and comic books and action figures. Every new year brought with it a new commodity in our shared ecosystem of childhood value. Fast forward to my adulthood and value was transformed into a very different and rigid definition— my time for money.
It wasn’t until the crypto bull run of January 2018, lightheaded from high altitude in Switzerland, that I would get another glowing glance at this rich and complex ecosystem of value transfer that had come so naturally to me as a child.
High up in the Swiss Alps, free from the normal disposition of my narrow adult nature, we saw hidden in a pile of shiny new digital bit dimes the working tools of shared value capitalism. What would follow is a coming of age story about bulls and bears, markets and models, stifled crypto economies and Economy Corporations designed to scaffold commonwealth.
It all began in late 2017, as almost $1 trillion in value materialized from the global diaspora one Bitcoin at a time. We realized that winter that many of the world’s problems could be solved if cryptocurrency markets could be built around the inherent values our world already shares. What if a learning economy could pay students to learn and rise into agency?
What if an eco-economy could rid the world of litter? What if a market hinged on the global burden of disease could provide a shared value economy where everyone could have healthcare without the need for institutions or government support? For us, the crypto boom was not about currency, it was about re-thinking the very definition of value. We saw clearly how inherent value markets linked with distributed integrity ledgers would reinvent the world.
We learned that winter that while the computer taught the world to store information and the internet taught us how to transfer that info, blockchain moved the needle of progress another order of magnitude when it taught us how to transfer value. The importance of this can not be overstated, but because of our limited adult appraisal of value it is hard for most people to appreciate just how transformative this new pioneering technology will be. There is more to the story of value than just time and money. What about a vote that can’t be tampered with or an ID that can’t be stolen or erased? What about proof of a skill that is portable across borders or transparent financial ledgers that curb corruption?
When I began to see what has real value, I saw a glimpse into the prodigious progress still to come in the next few decades as blockchain and machine learning flatten space and time around transferring value the same way the internet and AOL did for information two decades ago.
But by the United Nations General Assembly in September of 2018, it was clear this new value transfer blockchain paradigm couldn’t continue unregulated. The crypto market shifted violently into a bear run after the bubble burst midway through the year, leaving anyone still pedaling a crypto economy or an ICO in America labeled as either still light headed from high altitude or worse, a snake oil salesman intent to steal your savings. The adults in the room quit funding and developing cryptocurrency in America and instead refocused on enterprise blockchains. Then by the close of 2018, the SEC put a full stop to crypto coins in the U.S. while they began sorting out new regulations, leaving crypto innovation stifled and sandboxless.
And so where did everything go so terribly wrong?
After speaking at UNGA that year about commonwealth crypto economies then listening to Thomas J. Donohue from the US Chamber of Commerce challenge the forum to think up new ways of structuring corporations to meet 21st century business needs, the conjunction of ideas helped us realize the issue at the heart of it all. When a cryptocurrency economy is controlled, operated, and mostly owned by a C Corporation, which had become standard practice in the U.S., eventually the corporation is forced to make decisions that undermine the market for profit because of its fiduciary responsibility to maximize profits for its shareholders. That afternoon Jacksón Smith and I joined some friends in midtown New York City after the forum for dinner but couldn’t pay attention, we realized there had to be a new corporate structure to solve this conflict of interest. And once you see it, you can’t unsee it.
We saw how the complexity of this regulatory challenge stems from taking for granted the corporate structure underpinning the industry of most crypto economies. By ignoring the structure and trying to regulate a cryptocurrency C Corp, the equation simply never balances. The incentives are always out of line. There is a built in systematic conflict of interest that creates a breeding ground for collusion, corruption and dangerous clumsy corporate practices. This is a tough problem to spot, because at the onset each market and the corporation launching it have aligned incentives, the company grows and earns money as the market grows and earns money. But eventually there is an inevitable inflection point where the incentives fall out of line as the corporation is forced to make decisions to maximize profit for its shareholders instead of protecting the market, and the rest is collusive crypto history.
Before the end of UNGA that year we had partnered with Rico Garcia Ondarza, a Masters of Public Policy Candidate of Harvard Kennedy School, to develop a regulatory study focused on defining the challenges and recommending a new corporate structure: Enhancing Blockchain—Innovation via Regulation, The Case for an E-Corporation. On 17 April, 2019, the foundational first leg of the study was published providing a great step toward comprehensive blockchain regulation. The Economy Corporation solves the conflict of interest every C Corp faces, by realigning fiduciary responsibility to the economy instead of shareholders.
Mr. Garcia Ondarza summarizes the study: “This policy analysis begins by explaining what distributed ledger technology is, continues by introducing a framework that describes the main regulatory challenges, and concludes with a recommendation for the creation of an Economy Corporation."
"The E Corp is an intermediary between private and public, providing clarity for innovators on how best to structure their blockchain-based startups in order to: 1) operate within the confinement of the law, 2) preemptively address several of the challenges that come with distributed ledger technology, and 3) give consumers and users increased confidence and trust moving forward.”
The Economy Corporation is a theory, and this article is a clarion call for market tests. We invite the global community of regulators to sandbox Economy Corporations and share your findings with the G20 and other groups of regulators focused on sustainable development.
When I was a kid we traded super heroes and sports stars on books and cards and LEGOs and games. I have always valued heroes who reach for the impossible. My Upper Deck Michael Jordan card was worth the same as my friend’s new stereo no different than his special edition Superman comic book was worth the same as my Super Nintendo. We traded regularly. The Economy Corporation gives this commonwealth value transfer model a corporate framework for innovation. It will take adults with curious minds like children to reinvent a world where abundance is the most traded commodity by 2050. We invite you to research and pilot Economy Corporations with us in a global sandbox of open innovation.
This article was originally published in the 2019 Japan G20 Summit publication.
Chris Purifoy is the Co-Founder and Chief Architect of the Learning Economy. He is also a senior contributing editor with Diplomatic Courier.