The traditional firm is nearing its death. Long live the DAO.
Community is everything, especially in today’s day-and-age. With Bitcoin, that principle’s been extended to the creation and management of money and with Ether, it’s been brought on to the creation of platform businesses and the internet-at-large. Most topics related to these ideas have been covered time and time again by excellent writers and researchers.
What I’ve noticed in my time working in this disruptive space is that the impact of the blockchain, smart contracts, and overall crypto economics (DeFi) on the creative industries has been largely underserved. This year, that’s starting to change with the explosive growth of the crypto art movement, crypto games, and projects like Audius, but even so, it’s early yet.
Truthfully, because of how much has happened in 2020 alone, I could write for days on-end on the rise of these sectors. Still, one has to start somewhere right?
For me, that’s with going back to the basics.
What made the crypto space a powerful movement from the start and continues to make it so?
The disintermediation of everything.
How do we understand the impact of “disintermediation” in the creative industries?
Because so many industries apply in this case, I’d like to stick to music and book publishing for now. Ask yourself: what’s the biggest problem that all of these industries share? Record companies, galleries, book publishers, and all sorts of other middle-men like agents sit in the middle of the transaction between the creator and their fans, taking extravagant rents.
At face value, “rents” refer to fees for providing the service of getting something from point A to point B and, in these cases, marketing it while doing so to increase its revenue and overall market penetration. Think about what a record company does. They and their affiliated marketing agencies generate buzz for an artist to increase sales and help to distribute their music. Book publishers are essentially the same. Authors rely on them for marketing and distribution, and the prevailing idea is still that the big publishers are ideal because they can get your book into all of the necessary stores as quickly, efficiently, and with as much buzz as possible.
What’s the damage that these middlemen cause?
The damage is easy to grasp. For years, record companies and book publishers have been taking an average of 80–90% of artists/authors income. This includes the Spotify/Amazon era in which we now find ourselves. Those who make it big do so through sheer sales volume to offset the revenue that these middlemen are constantly eating up.
Truthfully, this is only the tip of the iceberg, to set the scene. The harmful nature of the business models of traditional book/music publishers goes significantly deeper. For now, however, if you understand the fees that they’ve historically taken and continue to take, then you’ll find it easier to grasp where we’re going next.
How do the blockchain, smart contracts, and cryptocurrencies “dis-intermediate” these industries and more?
It all comes down to Bitcoin and Ethereum. The former eliminated the need for banks in the creation and management of money. The latter eliminated the need for traditional firms. If you can’t see how Ethereum did this yet, then I don’t blame you. DeFi, which is the current driving force behind Ethereum’s rise is the answer to your confusion. No, it’s not just because “DeFi” refers to “decentralized financial services” which boil down to banks and everything related that can work in an autonomous nature. It’s more than that, much more.
Look beyond “DeFi” and down to the nuts and bolts of the crypto space.
Smart contracts are the key. With them as a foundation, we can do everything from minting and managing tokens that give people access to blockchain-based services to running full-scale lending platforms, and even running entire publishing businesses.
Yes, you heard that right.
Music, Book, and every other type of publishing as we’ve to know it is dead.
It’s only a matter of time. The more time I’ve spent in this space, the more I’ve realized that this is inevitable. The death of rent-seeking firms follows the death of rent-seeking financial service providers. Through grasping this, you are already equipped to “see around corners,” as business author Rita McGrath puts it, and cement your own future in a world where each every firm will start to look like a sort of DAO(decentralized autonomous organization).
What is a DAO?
In its simplest form, a DAO is a community of like-minded individuals that have gathered themselves and capital around a common purpose. If that sounds like a firm per Ronald Coase’s “Theory of the Firm,” that’s because it is.
DAOs are the next iteration. Using a few lines of code, anyone can spin up a cryptocurrency, encode voting rights into it and start any sort of community-run business that they’re interested in starting.
No one’s safe from this change and no one should be afraid of it either.
Just like the rise of the internet led to platform businesses taking over just about every market, the continued rise of crypto and everything related to it will fuel a major paradigm shift in how businesses are created and managed. Because I wholeheartedly believe this, I’ve dedicated most of my research for the long-term to how DAOs and smart contracts at-large will engineer a paradigm shift which will effectively represent something like “Industry 5.0.” Stay tuned for future content analyzing groups who I think are already think are working to do this, starting with Audius and moving beyond to yes, crypto art and more as well. In the end, my aim is to build a library of content on these topics and apply what I’ve learned in my Msc. as well as my MBA and life and teaching experience to demystify where the world’s headed in these respects. Over time, I plan for that to lead to a book on the coming disintermediation of the creative industries on a global scale. In my next post on this blog, I’ll be breaking down some of these topics to help everyone to better understand what I’m driving at. If any of this interests you, then stick with me here and thanks for reading this intro!
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If you’re a newcomer and some of these these terms are leaving you more confused than ever, don’t despair. I’m dedicated to helping everyone of all levels understand the entire crypto industry. Reach out to me any time and check out my other content here as well as on the NBX blog.
Disclaimer: None of this is financial advice. I’m a student of these technologies and innovation at-large, sharing my experience to help educate those who are just coming upon the things I’ve already come upon.