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The GLBSE and Decentralizationauthor: Vitalik Buterin
published: 2011-05-15 17:10:37 UTC
In a previous article, I talked about the Global Bitcoin Stock Exchange and how it differs from traditional exchanges. The arguments can be summarized thus:
- The GLBSE is not constrained by traditional regulatory norms; any type of contract may be traded.
- Smaller investors can trade on the GLBSE more easily because of a lack of overhead like brokers' fees.
- The GLBSE offers a convenient centralized way of voting that makes it worth it for even the smallest investors to participate, so the layman has a say in how corporations are run.
- The GLBSE allows decisions to be put to vote at any time, rather than at cumbersome physical annual meetings.
- The GLBSE is not limited to large corporations - even $1000 startups can, and do, use it.
Because of this empowerment of the small, the shareholder democracy would have much more direct control over the operation of the business. Voters would not only be able to punish executives who act against the company's interests, they would be able to stop the actions from being carried out in the first place. In fact, the freedom that the GLBSE offers would allow businesses to operate according to radically different decision making structures. For example, the GLBSE would make a perfect platform for a cooperative business, one which, rather than treating its employees like tools and paying them a fixed salary, pays them in stock and the resulting dividends, making them equal partners in the enterprise and its associated decision making.
Allow me to explain how such a business might work. Imagine a business of 100 employees, all of which are paid 10 shares per month. 1000 new shares would be issues every month to do this, so ownership would remain at 1% for each employee. After one year everyone would have 120 shares out of 12000, after two years 240 shares out of 24000, etc. After a few years, if a new employee joins, he would start off with no ownership but gradually approach 1% as he keeps working with the company - in our example, if an employee comes in at the two year mark, in four years he would have 480 shares out of 72480 (0.67%), in eight years 960 shares out of 120960 (0.80%). This serves as a compromise between rewarding early employees for taking risks and contributing capital and paying all employees fairly, one of the main problems with cooperatives as they operate now, and would also allow contract employees to fit into the system. Employees leaving would have their shares eventually diluted by newly issued shares. To prevent entrenchment, the number of shares issued could grow exponentially, so that even after fifty years new shares would continue to dilute old ones fast enough for new employees to see their salaries rise to the average level within a reasonable timeframe. This is, of course, only one possible way of running things, and other even better solutions might arise, but one of the great advantages of the Bitcoin economy is that it does not have to submit to existing norms of corporate structure and accounting models, so experiments like these become possible. And even a conventional business might morph naturally into a cooperative as if shares carry the precise decision making power the GLBSE allows, they would be most useful to people most affected by a company's decisions - the employees and customers themselves.
There is a different type of decentralization that arises from the GLBSE that must also be mentioned: conventional stock exchanges are available only to corporations big enough to go public, while small businesses must usually be bought out, either entirely by big businesses or partially by big angel investors and venture capitalists. This encourages aggregation of business ownership into centralized elites. On the GLBSE, in contrast, there is no regulation and thus no minimum size. Thus, the stock exchange replaces not only the function of exchanges like the NYSE and NASDAQ, but also venture capitalism; small businesses, just like large ones, would be able to take advantage of public investment, allowing innovative new businesses to far more easily attack entrenched monopolies with huge economies of scale keeping them in power.
Thus, there would be a decentralization of economic power from the hands of the few into the hands of the many. The underlying fabric of the economy would shift, from our current centralized big business style of capitalism to a system similar to mutualism. Mutualism is a 150-year old economic philosophy which describes a type of society in which economic activity is done entirely bottom-up, with no big business or government interference, and where the means of production are controlled by individuals and, where necessary, cooperatively run factories. There are few regulatory differences between mutualism and big-business capitalism; they can both occur in a society without regulation. The difference between the two is divisibility; as 19th century French philosopher Pierre Joseph Proudhon describes it:
Imagine now that property and all the domains of the nobles could be divided and sold like chunks of beef, that they enter into an exchange and are paid for with products, since they are nothing but products: soon you would see inequality decrease, and property, by the same quality it had to monopolize, become an institution of equalization. (Theory of Property, 1862, French original here)
It is divisibility that is the difference between property ownership leading to accumulation in the hands of the few, and therefore oligarchy and despotism, and property ownership leading to equality, and a stock exchange embodies the very definition of divisibility. Without divisibility, every purchase constitutes a concentration of economic power into fewer and fewer hands. With a stock exchange, economic power can be split into as many pieces as necessary.
With the GLBSE, businesses could be controlled - not merely traded as securities, but truly controlled - by tens or hundreds of people right from the start, and this control would flow naturally to those who are directly involved with the business as those would value shares at a higher price than those who merely see them as investment or speculation vehicles. Our current capitalism is one of one person controlling one hundred businesses; this new capitalism, of which the GLBSE may be at the forefront, is about a hundred people controlling one business. Capitalism will be an enterprise by the people, for the people.
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