This use case covers creating entities, functionally incorporated companies, based entirely on the Blockchain without the need of lawyers, notaires or even governments. The company developing this software is Aragon. You create and run your company via a webpage or a dedicated application. On this page you can add partners, issue shares, onboard and pay employees and vote on the bylaws. Aragon will create their own internal arbitration process to govern disagreements. This will all rest on the Blockchain using Distributed Autonomous Organizations (DAO’s).
Problem Being Solved
In this case the solution is creating companies on the blockchain, or to be more precise the “legal” entities that are the official company. This involves the creation of the company, declaration of the owners and shares, define voting rights. The company can have a vault for the money with a multi sig wallet with access according to the agreed voting rules. It can facilitate fundraising, including issuance of ECR20 tokens. Accounting is included so you will be able to add other identities and pay them, this allows the company to deal with employees, suppliers and customers. Voting among the shareholders can take place. It will allow these companies to exist without intermediaries in a supranational environment. When disagreements take place a complex, multi layered arbitration process is envisioned.
This capability is ideal for capitalist companies where the owners are spread between many countries, open source software projects and international charities. It allows for many owners and complex voting structures because at its heart it is a computer.
The most serious company that is developing this capability on Ethereum is Aragon. They have two brilliant founders that actually found each other when teenagers worked collaboratively from different countries. So, they have lived the difficulties in running a distributed company. These difficulties inspired the idea and the Ethereum Network provided the platform. They are well financed ($25M) from and ICO they ran in May 2017
The ICO created the ANT token which is used within the organization. All participants in the ICO received these tokens. Later these are used within the Aragon Network Jurisdiction
Their product to date is at Alpha level and available for download. The have a detailed public development plan that expects Beta testing to start in the first half of 2018 on the main Ethereum Network.
How to Use It
The interface for Aragon (for the product and the company share the same name) is through a web page or a standalone application. Operation is designed as simple as possible with the blockchain transactions taking place invisibly in the background. This will allow anyone to use it, (even senior executives) without blockchain experience or sophisticated computer skills. Identity will be important, because a false login could give away the keys to the company.
Aragon’s companies, which I will call entities for clarity, are efficient and inexpensive because they do away with the intermediaries. No lawyer, no notaire, no government fees and registration. But this means that major company decisions could take place with everyone remote. Self-Sovereign Identities will be a major input to validate the users.
Aragon companies use the advantages of the Ethereum blockchain admirably. It needs the distributed security and immutability of Ethereum to operate viably.
Once established a company generally needs money. Each company can have one or more wallets, at the moment in Eth, but later in various currencies, both fiat and crypto. Within Aragon you can establish your own token or import an existing one. It will allow simple purchase and issuance of tokens
An Aragon entity will facilitate An ICO implicitly. An ICO generally has rules for issuance of the token during the ICO. These rules could be within the Aragon entity. The full entity ownership and management structure of the entity would be developed within Aragon. It also means anyone could use the Aragon MMI to view this entities structure. Aragon entities will be very public, discussed below in more detail below.
Aragon will allow you to onboard people with various roles. Example roles in the Alpha release are; executive shareholder, superuser, non voting shareholder, employee, or none.
At least basic accounting will be included within the Aragon MMI. It will allow payment to employees, suppliers and transfers. For me, this will only be of limited value. First, you don’t want your internal accounting transactions generally to be public. Second, there are so many transactions that the gas required for each will be more expensive than the advantages. I would expect this accounting to be used only in the very beginning of entities and for major share transactions. Still, it will be interesting to see how this evolves. This also leaves room for an “accounting plug-in” where a customized accounting program is used rather than the Aragon basics.
Each company made via Aragon exists as a self-sufficient entity on the Ethereum blockchain. It has its own set of rules and users. But, the founders of Aragon do not believe entities want to be completely on their own. So, they are making their own structure the entities can exist within and built upon.
The Aragon Network (AN) is a set of digital contracts and rules that any Aragon entity can’t accept to be ruled by. They are calling it the Blockchain equivalent of Delaware. It includes a decentralized court and base contracts for creating entities. Everything within it can be upgraded so the rules, can evolve as Blockchain everyone learns. The Aragon Network will be governed by what is presently called liquid democracy. I am not sure exactly what this means but clearly the participating entities will have a say on the evolution of the network rules.
AN Network Jurisdiction
A crucial aspect of the Aragon Network is the Aragon Network Jurisdiction. It will include a three-stage arbitration process which they have described in some detail. It will have three roles; plaintiff, defendant and judges. All bonds and bonus on the ANJ are paid in ANT, the token of the Aragon Network and the token given out at their ICO.
So, how would it work? I have made some assumptions and simplifications, but the overall process is in line with the Aragon documentation. Let’s assume that a customer is unhappy with a product or service and wants a refund plus damages.
The judges are any entity that volunteers for the role and posts a bond. If the judge acts irresponsibly, is inactive or makes judgments which are not in line with the majority, the bond can reduce or eliminate it entirely. It is easy to become an entity, so almost anyone can become a judge. All the token holders from the ICO will be qualified. This will be interesting at the start and interesting to see how this evolves.
The customer, the plaintiff, logs on to an AN website and lodges a complaint against the entity. He must deposit a bond and specify the exact remuneration he wants he wins. The plaintiff knows how much he will lose or gain right at the start. He is given a date by which he must present his case. The defendant also receives notification that the case has been raised. He must present his defense by the same date. Both parties create sets of documents or videos or whatever stating their case.
5 judges are chosen at random. As this is a distributed system, the judges will not know each other and cannot collude, nor can the parties influence the judges. Each judge reviews the documents provided, including the bylaws of the entity. Each judge makes their ruling (Yes/No). The majority ruling wins and the judges that voted with the majority are given a bonus, those that did not penalized.
If the plaintiff loses, he loses his bond. If he wins, the defendant should pay the remuneration to the plaintiff. However, it is difficult to force him. In extreme cases an entity that joins AN can have the funds frozen, but in less extreme conditions, it will probably be listed as an outstanding debt in your Aragon website, and your public reputation will be tarnished.
If either the plaintiff or defendant wants to appeal the finding, they can take it to Stage 2.
The party requesting the appeal must now post another bond, significantly larger than the previous. The ANJ would set these bond levels. I suppose both parties could update their documents. These then go to every judge on the network, probably using a prediction market like Augur or Gnosis. Once again the judges that get it right are rewarded, either with a bonus or reputation, the others penalized.
Stage 3 – Supreme Court
If they are still not happy, they can appeal to the supreme court, placing a yet larger bond. Now the top 9 judges (based on earnings/reputation) will decide.
Of course, for some legal action will require lawyers and real laws. This would be difficult. The entity is on the blockchain of no fixed address or even country. Aragon is incorporated in Spain but they are not related to their specific entities. You could go after the owners individually. Perhaps the owners would each incorporate themselves and have their incorporated company as the shareholder of the entity. This would offer some protection. It will be interesting to see how this will develop.
Taxes will be a challenge for Aragon entities. Internet companies are already a challenge with respect to jurisdiction and enforcement. Blockchain entities, exactly what Aragon is doing, will be yet more challenging. Aragon entities are supranational by nature. However once an entity agrees to pay tax to some government implementing the actual taxation should be relatively standard. The government would require its own Ethereum addresses but coding the rules for paying the tax should be “relatively” straightforward.
In the original design Aragon entities are public. Anyone on the Blockchain can see the assets and transactions of the entity. This will be a problem for some organizations and an advantage for some charities and other public organizations. I expect later versions to include some levels of privacy. I am sure it will not be among the first priorities for the Aragon developers.
At this point each entity seems to be fully on the blockchain. There is no remote data.
The Aragon company will be governed by the holders of the ANT token. At the moment it seems to be managed by the Aragon management with a lot of public discourse. Aragon takes governance very seriously.
Under the Hood
At its heart, each Aragon company is its own DAO (a Distributed Autonomous Organization). These DAO’s are designed to create and run Aragon entities. Aragon will write these custom DAO’s. However once launched, the entity DAO is on its own. Apart from updates of the DAO software (discussed below) Aragon is no longer involved. The entity can choose to join the Aragon Network with its rules and restrictions, but it is not mandatory.
Through the Aragon MMI the user interacts with his Aragon entity. This will require tight integration with the webpage interface and the Ethereum smart contracts. The Alpha is working on an Ethereum Test network Kovan with MetaMask. Doing things with the alpha has been awkward with a few lock ups so there is room for improvement. It underscores the impressive complexity of the application.
Compared to other Use Cases described in this website, the coding sophistication of the Aragon entities is very high. These are large complex entities. Coding this within the Blockchain with full security will be a technical challenge. The tight web3 integration is going to be challenging.
Who pays the gas?
For Aragon, who pays the gas is relatively straightforward. Once the entity is created it has its own assets, its own Ethereum wallet and it must pay its own gas from that wallet.
Ideal Use Case for Blockchain?
According to Vitalik’s 5 Points how well does this use case suit a blockchain application? Score 19/25, 76%. Great!