The role of cryptocurrency foundations
This article describes why cryptocurrencies need foundations instead of companies.Author: Zhu Weisha
Connecting the Past and the Future
This is the last article in the cryptocurrency analysis series, starting from January 2023 with "Invite Satoshi Nakamoto to Welcome the New World" to October 2023 with "The Role of Cryptocurrency Foundations," totaling 91 articles that express our views on cryptocurrency. Our perspective is not the mainstream view of cryptocurrency; our fundamental viewpoint is to summarize Satoshi Nakamoto's thoughts using blockchain and to argue that the belief that Satoshi should not come out is untenable, objectively hindering the development of cryptocurrency. This viewpoint has been reiterated from different angles in the aforementioned articles. There are many innovations in the cryptocurrency field that deserve recognition and further development, and it is impossible to elaborate on all these achievements. The related series of articles form the theoretical foundation and ideological source of the Chainless System.
The next article will begin the white paper series. It will provide an introduction to the decentralized currency DW20 and the WEB3.0 Chainless Financial Platform, with the official release of the project white paper coinciding with the seed round airdrop and the APP download. The Chainless website (chainless.hk) will serve as the official website and a communication space for the user community of the Chainless System.
This article describes why cryptocurrency needs foundations instead of companies.
The emergence of cryptocurrency foundations is a necessity of ICO (initial coin offering). Currently, it is unclear who first proposed the cryptocurrency foundation. The earliest ICO appeared in the form of "token crowdfunding." On July 31, 2013, J.R. Willet issued Mastercoin. He published a paper on the Bitcoin forum and provided an address; the funding for this coin was very rudimentary and lacked a clear legal structure. Later, Willet expressed relief in an interview that he did not end up in prison.
In June 2014, Ethereum (ETH) began its presale, and like Mastercoin, it also adopted the ICO format for fundraising. Unlike previous ICOs, Ethereum was conducted within a certain legal framework. To ensure that the ETH presale complied with legal and financial regulations, the Ethereum community established several legal entities, including the non-profit Ethereum Foundation established in Switzerland in June 2014. Deepchain author "Menren" believes: "Subsequent ICO projects are basically modeled after Ethereum's framework."
Characteristics of the Ethereum Foundation
- Non-Profit
There are various types of foundations with no unified model; the first characteristic of the Ethereum Foundation is that it is non-profit. The Ethereum Foundation has a source of income, which is 2% of the total transaction fees of Ethereum, used for management expenses and other costs. The biggest problem is the need to invest in and support ecological projects. Since it is non-profit, even if ecological projects make money, the foundation does not benefit. At that time, to avoid illegal fundraising, this left a hard injury, which now seems unreasonable. The Chainless System retains 35% of profits, hoping to use this retention to invest in ecological or non-ecological projects to further strengthen the profitability of the Chainless System. Leading Web2 projects use investments in related projects to grow themselves, which has become a powerful tool, while the "non-profit" nature of non-profit foundations is self-sabotaging. If you do not acquire, how can you defeat Web2? If the foundation invests and makes a profit, it just needs to pay taxes, so the non-profit foundation is the wrong option and has become one of the reasons hindering the development of cryptocurrency.
- No Equity
The Ethereum Foundation "holds" less than 1% of Ethereum's equity and does not possess a traditional corporate structure. It should not be constrained by traditional corporate law. After Ethereum 2.0, Ethereum represents the "equity" of the Ethereum system. For detailed analysis, see "Cryptocurrency from the Perspective of 12 Leading Projects" (chainless.hk). Ethereum's decision-making is not based on "coin ownership." Different rights for the same coin resemble the A and B share structure in the stock market. However, stocks have a clear definition that clarifies the relationship between A and B shares, while Ethereum does not. From the perspective of corporate governance structure, there is no foundation law or corporate law that meets the needs of Ethereum. The Ethereum Foundation mainly relies on moral constraints.
The Ethereum Foundation is the Core Team of the Ethereum System
The role of the foundation is not to control Ethereum; its mission is to promote the development and growth of the Ethereum ecosystem, providing support and resources for developers, businesses, and the community. The foundation's work focuses on:
Protocol Research and Development: The foundation's research team is dedicated to advancing and improving the Ethereum protocol, including aspects like network security, scalability, and privacy protection.
Ecosystem Support: The foundation provides financial and non-financial support to projects and entities within the Ethereum ecosystem through grants, incubators, and other means, accelerating the growth of the ecosystem.
Community Building: The foundation promotes communication and cooperation within the Ethereum community through organizing meetings, events, and social media, enhancing community cohesion and innovation.
We see that the Ethereum Foundation bears ultimate responsibility for system security, fund allocation, and future development; they also have legal personnel. This power is manifested in the Ethereum Foundation's operational authority over the Ethereum system.
Influence Operations: Their operations are based on a very loose foundation, which we call influence operations. They have not truly realized the core value of tokens as a community bond.
By the way, the Ethereum system does not have a user community, while the Chainless System has a user community. Therefore, the Ethereum community is not the community of all token holders.
The Ethereum Foundation is merely a Limited Centralized Team
Clearly, Ethereum is different from Bitcoin; Bitcoin does not have a core team responsible for operations. Although Ethereum has one, the core team of Ethereum does not hold as much power as a traditional centralized team. One reason is that it follows the principles of openness, fairness, and transparency established by Bitcoin. Secondly, the core team is more focused on development, which is a natural historical evolution. The existence of forks also limits their management of ecological projects on the platform. Thirdly, there is a high degree of automation, with little that needs management.
No Checks and Balances on the Ethereum Foundation
The corporate governance structure of publicly listed companies provides checks and balances on the management team; what checks and balances exist for Ethereum? The Chainless System has designed checks and balances to prevent the core team from wrongdoing.
What Should We Call a Core Team Without Equity?
It should be said that the Ethereum Foundation is the offline foundation closest to the characteristics of cryptocurrency, but using the term foundation to describe the core team seems inadequate; describing it as an operating company may be more accurate, aligning with the practice of separating ownership and management rights. Trust management already has mature experience, and the trustees accept elections from all token holders. Elections can be direct or indirect; in the stock market, direct elections are generally conducted through shareholder meetings. In the Chainless System community, indirect elections are adopted, with group leaders voting on behalf of the community to indirectly elect the core team, and the candidates are filtered through layers within the community.
Community projects generally have "equity" that is dispersed, with no absolute "major shareholder." Emphasizing no equity aligns with current legal environments, but the organizational structure of the foundation is too simplistic. Why is Buffett an investment company rather than a foundation? Because they have equity and a complete corporate governance structure. An enlarged community is like a country; the president has no "equity" and is also elected, while the decision-making power of the Ethereum Foundation exceeds that of the president, as the president is still subject to checks and balances.
I tend to think that the core team of community projects should be called an operating company (operating company or Opecompany) in the future. However, the current legal environment does not allow for this.
Entering the Chainless White Paper
The community is a very worthwhile area to explore, and the practice of cryptocurrency is ahead of humanity. We have seen both successes and failures within it. Chapters three and four of the Chainless System summarize and explore the practice of cryptocurrency communities.
Entering the Chainless white paper, we will first interpret the series of innovations of the Chainless System, divided into four sections:
- Product innovation of the Chainless System;
- Innovation of production relations in the Chainless System;
- Business model innovation of the Chainless System;
- The role of the core team in the Chainless System.
The preface of the Chainless white paper states that the ideological value of cryptocurrency is greater than the product value, and the product value is greater than the value of the blockchain ledger. One of the founders of Bitcoin, Nick Szabo, expressed the same view: although technology is important, the design philosophy of Bitcoin is the most important. In the innovation of production relations, we propose the people-based token distribution POP algorithm for the first time.
POW is a time-based algorithm, POS is a stake-based algorithm, and POP (Proof Of People) is a headcount-based algorithm. In the business model innovation, we propose a business model where the benefits come from "pigs + sheep" based on the Chainless user community and indirect incentive schemes. This model amplifies user value through community design. It is precisely the explorations of cryptopunks like Nick Szabo and Satoshi Nakamoto in the dark that led to the design ideas and successful products of Bitcoin, pioneering new ideas for humanity and making improved innovation possible.
