Bitcoin Forum

Maybe some of you already thought about it.
My goal is to have the first proof of concept of a business entirely financed anonymously, and optionally managed anonymously.
I want to submit the idea of such "Open Business" to you. (My particular project is not relevant to this discussion)

What if everybody could create, or finance a project without any barrier ?
To my mind, it is possible with the help of colored coins, and immediate benefit transfer.

Imagine Alice wants to build a new cool project.
Alice announce the project, but need 100 BTC to start it.

What Alice can do, is to declare that each time a product is sold, then the payment is transfered to a published PublicKey that everyone can track. We call such key the PaymentKey.
Then she declares the following : For each unit sold, 20% will be kept to pay the expenses and the other 80% will be distributed proportionaly to the amount of Colored Coins one possess, in real time.

Imagine that Alice distributes 200 Colored Coins.
She keeps 100 CC for herself, so she will get 80% * 50% of every unit sold.
She sells 100 CC left for 100 BTC to investors.

Now investors have an incentives to fund her project, because they will directly receive money for every product sold.
Also, investor can check that Alice does not cheat the system because they know the "PaymentKey", and will monitor every business transaction thanks to that. (they can also buy the product by themselves just to see if the payment ends up on the PaymentKey)
Also, they can track how much CC are emitted by looking the blockchain.

Imagine Alice get funded.
She sells a unit of 10 BTC.
If you own 1 CC, then you will receive 10 * 20% * 0,5% of the sell.

Alice has an incentive to make the product works, because she owns 100 CC.

Now, imagine there exists a marketplace of Colored Coin. If the project goes well, investors will be able to trade their CC with other traders.
In the same way, if Alice wants to retire from the project, she can sell her CC.

During the project, if any decision impacts the investors, a vote system with crypto signatures of holders of CC can be put in place.
Such votes would be lazy consensus.

All the software to make such thing happening is currently not developed. (CC marketplace, and ability to track and emit your own CC)
But imagine it is, do you think such "Open Enterprise" can work ?

In a way, it is extending the open source philosophy to a business.

Opening a new business is more or less compete with the current one.

Competition drives down profit. So be careful who you go after.

I don't understand your point.
I don't want to open a business, I am talking about a way to make a create a business whose financial existence would exist on the bitcoin network. (Votes, Shares, and profit alike)

Do you mean that such system would create high business creation, and drive competition up, so would crush profit to the current one ?
This seems more like feature than a bug for me.

I like your idea and being totally anon. is the keyword, I like it so much.

But what is next step, I see you have and you did a great illustration.

The previous reply is about, don't go for a finical company or something telling them about your idea, as they are your competitors.

Got it ?

Knowing the idea won't help financial companies at all.
They can't fight against the openness of Bitcoin and prevent such concept of totally decentralized funding, once tools and such ecosystem is in place.
I want people to be free to innovate, anonymously if they want, and finding anonymous capital is the way to provide such freedom to innovate.

This is a very interesting idea and I've often thought about applying the open source concept to business, and how that would work out.

One issue might be limiting the growth of the business by paying out too much of the profit early on. How do investors decide to take out their profits or invest in growth? If even a small percentage completely take out their profits it can really hinder the growth of the company I think.

If the founder need more capital to grow, he can decide to expose the case to investors, and run a vote to issue more CC.
I think that if there is lots of growth possible, then the investors already having CC, won't mind being diluted a little bit.
Why ? Because, contrary to classic shares, CC gives right to direct and real time profit depending on sell volume of the company.
Sure, their CC will be diluted, but if the business can really grow, the whole pie will be bigger.

The investor would be able to evaluate the need for such capital growth, because they would have access to the published PayingKey to verify the financial status of the business.

Yeah that sounds like it could work.

I would love to see this put into action at some point.

Would a protocol for this have to be written from scratch, or does something like NXT already provide some of the features necessary?

The protocol for "open assets" is describe at https://github.com/OpenAssets/open-assets-protocol/blob/master/specification.mediawiki (https://github.com/OpenAssets/open-assets-protocol/blob/master/specification.mediawiki).
This does not make any modification to bitcoin protocol. (Just leveraging OP_RETURN TxOut)

It is already used by https://www.coinprism.com/ (https://www.coinprism.com/).

So in the protocol would already support such thing without any doubt. But I think the ecosystem is not yet developped enough (market place of CC, and correct tools to manage portfolio privately -without web, hot wallet-)
My next work will maybe try to develop some tool that make tracking CC easy and off any website.
But before doing that I want to uncover any bad incentives that would make such "open business" to perform badly.

Is there a service like bitpay but instead of converting bitcoin to usd, it can convert usd to bitcoin?

I think something like that might be necessary. I probably wouldn't want to invest in a store that only took bitcoin. At this point anyway...

This is would not be a "store" in the traditional sense, it is a business that would permit financial anonymity of the investors and founders.
Such "Open Business" can't be implemented in current, existing business, only for new one.
And not for a physical business, only knowledge, software, services, or "under radar" ones, at least until government does not embrace Bitcoin and such accounting practices.
Bitpay break any anonymity, and hide financial operation (which happens off chain) from the eyes of the investors, thus breaking the open accountability of the founder. (Thanks to the published PaymentKey)

The goal is to allow anonymity of both, founder and investors, but allowing trust despite of it by having the internal books of the business open to every investors. (And retrievable from the blockchain)
Only bitcoin payments would permit to keep the anonymity of the founder, even if the book, and accountability is irrefutable and public thanks to the public "PaymentKey".
All back and forth in currency would break anonymity but also hide operations from CC holders (investors).

This is not meant for everyday business and physical store. And not meant for black market.
But as a way to incentivize funding of an entrepreneurial project by bypassing any financial institution or institutional barrier.

Let's be clear : Such "open business" would be a big legal problem, because normal business require banking account, and books in currencies.
But I expect legislation to change to accommodate it when they would not be able to stop such business from flourishing. (thanks to backed-in anonymity of investors and founder)

Maybe a good first way to try is out would probably be a bitcoin based gambling site. Where investors can invest their money and take out their profits at will without having to trust the site operator like they currently do. Would that be possible?

Whatever the service, as long as it is not physical, it is possible, gambling site sounds fine, since investors know they are sure to have a steadly return from customer's loss.

However, an investor can't take out the money freely, he needs to trade his CC to another investor willing to buy it.
But if the investor does not need money now, he can just enjoy the steady profit of the gambling site.

I published a wiki page about that where I speak about it in more details : https://github.com/NicolasDorier/Open-Business/blob/master/specification.mediawiki (https://github.com/NicolasDorier/Open-Business/blob/master/specification.mediawiki)

Nice, checking it out now.

I really like this concept and I hope to see it evolve.

Thanks,
I will develop it, this is a sure. But I really need help of idea in incentives for an anonymous founder to do the right thing.
I gave some idea, but I don't think it will be enough.
What I am thinking about is a concept "trust backed by investors" of anonymous founder that would be controllable tool by investors, and would give incentives to flow capital in businesses held by trusted founders.

Perhaps time locked rewards based upon meeting or exceeding certain metrics. Bonuses based on progress. Or even negative bonuses when metrics are not met. For the founder I mean.

They could be based to a sliding scale and not necessarily static. Providing the most incentive possible with the greatest gains when the highest amounts of profit are made. Mutually beneficial for both investors and the founder(s).

And how would you enforce the reward in a decentralized manner ?
A vote by investors is possible and provable, but who would unlock the reward ?
Also, I fear that if founder feels "punished" (by not having the bonus), he would feel threatened which is not very good for long term profit and encourage short term profit, which give rise to dubious accounting and business practices just to meet the goals.

But it might be a good idea to develop, there is surely some way to mitigate that.

m of n unlocking with investors voting perhaps?

Yeah, I see your point with regards to the founder feeling punished. But sometimes I think it's important to have an actor who has risk at stake in order to make sure their incentives are aligned properly.

This is absolutely true Marlo, Founder should have some "proof of stake" that investors can impose if the odds of fraud go too high.
m of n unlocking with investors voting, I think, is the way to go.
However, who these "N" would be ?
It can't be investors, because nothing would prevent one to buy CC only to get enough % to get one key, and then sell the CC.

One potential solution is what I talk about when I say "trusted founder, backed by investors".
A key would be given to other founders, whcih has been trusted in the past for other businesses performance.
Such performance is easy to prove (founder owns PaymentKeys of other business), and can't be faked.

That's an interesting idea. Established founders who have already built trust can be used in a sort of "overseer" role. They could collect a fee and build their reputation while protecting the investors.

It sounds like you're in the process of serendipitously reinventing DACs (Digital Autonomous Corporations), something enabled by the blockchain and bitcoin protocol. A quick google should give enough resources to make yourself familiar.

[1] http://bitcoinmagazine.com/7050/bootstrapping-a-decentralized-autonomous-corporation-part-i/ (series)
[2] http://coinwiki.info/en/Decentralized_autonomous_corporation

I've read the bitcoinmagazine article some times ago, interesting links.
They talk about the general idea, the goal now is to make it technically possible, and create the software for. (which I want to develop)

It is impossible to do due diligence with this kind of company.

One part of corporate america is that people are held responsible when mistakes are made.

Is management is anonymous then it will be impossible to see that people are held accountable.

InvardContour, I want to keep founders and investors anonymous, because they can't be sued. It is a feature, not a limit.
The Open Business, like Bitcoin, won't use the justice system to protect itself, but a system of incentives so we don't need justice.

However, the real reason why people should be anonymous, at least for the beginning, is because of the emission of shares with the form of CC.
A normal IPO is heavily restricted to big companies, and by paying large fees to banks. Emitting CC bypass this system, and I fear that such thing is illegal.

Moreover, the founder can't give information about the investors and from where the funds come from, since there would be no centralized institution to emit and trade CC.
Such thing would make impossible for the IRS to fight against money laundering.

This two reasons, to my mind, would make such business illegal. Thus anonymity should be kept.

And yes, recourse would be impossible, which is the heart of the problem.
How to give incentives to the founder to not fraud ?

The goal is to lift the international, bureaucratic, fiscal and political barriers for worldwide entrepreneurship and funding. And sadly, there is no legal way to do it.

how does this differ from the etherium project?
and doesn't eth solve most of your problems already?

from what I understand you should be able to do this entirely in eth without any trust.
I have been researching the same kind of thing and don't understand why would want a layer on top of btc instead of running it all natively inside a blockchain.

I have not informed myself enough on eth to comment on that.
However, the problem is not a technological one.
Technologically speaking, Bitcoin as well as eth to support an open business. So why using eth ?

The problem is pure game theory. How to setup incentives to not fraud without a legal system ?
The response is more structural than technological.

But maybe I am missing something about eth. Can you tell me how eth would respond to this problem ? Why bitcoin can't ?


I don't understand what you mean. A layer on top of btc can at the same time run natively inside a blockchain. Colored Coins is such thing.

Because of the ability to run code inside the blockchain your business can be completely trustless.
You basically need to come up with a contract structure and it becomes law.
You can not cheat it.

all the payments can be made to be automated including the shares payout for stakeholders/investors. I'm a bit busy at the moment so I have no time to go in to much detail now but will be happy to discuss it here or over pm.

Eth is designed specifically to do what you want

If ethereum is going to do all that perhaps he can just build his idea within ethereum?

Yes, I would if there is such advantages. But as long as eth is not up and running, I'll work on the Bitcoin way to do that.
I'll educate myself better on the subject, but to my knoweledge eth is always in development.
Seeing the size of their team, also mean that the shipping date will be impacted. Meanwhile I continue the Bitcoin way.

The most important thing right is now anyway is like you said: figuring out the optimal strategy so that the incentives line up. getting the game theory right is the key.

very true; converting it to a eth contract is easy once you have the right concept and workflows.