Published on November 11th, 2013 by
by Daniel Larimer, CEO of Invictus Innovations
is a Chinese news aggregator and blogging platform that has begun calling themselves a Decentralized Autonomous Corporation (DAC) or a set of DACs
. The core idea is that writers each have Bitcoin addresses and that revenue generated by the websites advertisements are paid to the writers via the Bitcoin addresses. This is a centralized company with a centralized domain name that could be taken down. 8BTC also claims to have a membership DAC, but they have a centralized pre-screening process.
After hearing about 8BTC’s misuse of the DAC concept to describe their service, I decided I would sit down and define how such a service could be implemented as a true DAC. If you are not familiar with the concept of a DAC you may want to take some time to review my prior articles on the subject.
The first step of this process is to accept that it must not have any centralized dependencies. This means it must be free from all centralized servers and domain names and must not rely on centralized copyright enforcement. The service must also be free of all centralized advertising revenue. Lastly the service must be free of centralized editors or censorship. The second step is to clearly define the purpose of the DAC in a manner that enables us to think outside the box as we consider potential implementations.
I would define the goal of 8BTC as generating revenue for the writers and to promote distribution of solid high-value content. The traditional means of generating revenue is through advertising, tips, and paywalls. Meanwhile valuable content is acquired by paying talented writers and using centralized editors. None of these traditional means of achieving our desired goal are possible with a DAC, so we must think different.
For the purposes of this article, I will name this new DAC Associated Press, DAC (AP,DAC) after the Associated Press
which is in the business of distributing stories across many outlets. AP, DAC will be a dividend paying, for-profit, DAC that will derive profits for its shareholders from service fees.
If we are going to build a decentralized news distribution service then we will have to find a new way to generate revenue for writers while also filtering the best content. We will also need a new distribution model that does not depend upon any one domain name or web host. This is the easy part, you must allow anyone to republish the content on any domain and in any manner they wish and then provide them with financial incentive to do so. Then you must also provide a way for the original, potentially anonymous, author to profit even as their content is being distributed far and wide.
This is where a prediction market enters the equation. Allow any author to submit a URL to their article to the block chain. Once the URL has been submitted (with an appropriate fee paid), the author can place a bet on the ‘value’ of that article. Those who read the article can then bet on whether they think the value of the article will go up or down from its current price. If they think it will go up in value they bet on the article and then work to republish the article and advertise it through their channels. If they think it will go down in value they bet against it and focus on promoting other content instead. All bets can be tracked and settled in the block chain in a manner very similar to how BitShares
The end result of this AP DAC is that market forces will conspire to create many outlets for quality news that is hard to censor. It will result in rapid recognition of quality work and reward the authors of that work handsomely as the perceived value of the article rises. It will reward web hosts who advertise or republish the work because they bought into the article along with the author. Publishers also generate revenue from traditional sources such as advertising by having high-value content to distribute. It will also automatically filter bad writers which provide low value content because they will lose money if they continually pay to submit articles that never gain any traction.
Someone might point out that a solid author who writes predictably popular articles will have a hard time buying in at bargain basement prices and thus his opportunity to profit from the rise in popularity of his articles will be hindered. This can be addressed by giving the author a large cut of all transaction fees associated with speculating on the value of his articles. Any article that is picked up and published far and wide will have a lot of people buying a stake in it and the author will get a cut each time this happens. He can also rake in a royalty payment from detractors betting against his article. In a sense, the more detractors one has the greater your royalty payments will be!
How Royalties are Paid
To fully understand the mechanics of this you will want to read the BitShares white paper
and my article on Decentralized Autonomous Corporations, but I can provide a high-level summary here. Anyone wishing to speculate on the value of an article going up must find someone willing to speculate that the value will go down. The individual betting against an article must post collateral in the form of shares in AP, DAC to maintain a short position. Because shares in AP, DAC pay dividends like most other DACs the dividends on the collateral can be redirected to the author of article.
Under this design there are three parties that benefit in different ways. Someone who decides to invest in an article and ‘go long’ profits when the price rises. Someone who decides to bet against an article and thus ‘go short’ profits when the price falls more than the dividends they would have received and lastly the author profits from these dividends. The more people speculating on his article the greater the royalties the author earns.
All of this will work without the need for centralized advertising or donations and will provide a better news source than any existing news aggregator. Translators would have a huge financial incentive to translate successful articles from one language to another because they have an opportunity to ride a similar growth curve in the new language.
While the content will be distributed, the author also builds brand recognition and drives traffic to his own website as a result. People start following his work directly so that they can get a heads up on new articles to invest in. This gives authors many indirect means of profiting from their work.
In addition to speculating on the value of individual articles, users can speculate on the value of individual writers. In this event an individual can invest in themselves early on and then work to build their own brand through publishing quality articles. As they establish a solid track record they make a large return on their investment. It is like having a mini IPO for every author. Once again, those who go short in order to bet against a particular writer have the dividends on their collateral redirected to the writer and as a result generate a steady stream of revenue for the writer.
Scalability of AP, DAC
Clearly there is a lot of overhead associated with creating a market for articles. There must be a large number of players before efficient markets can take effect. Fortunately, AP, DAC doesn’t need to process every possible blog like Digg or Reddit. Instead AP, DAC is in the business of producing the highest quality articles by the best possible writers.
To keep the markets deep and focused on the highest quality articles, AP, DAC must limit the number of submissions it allows every day. This is easily accomplished by only allowing one submission per block. Therefore the first obstacle an article must overcome is getting included in the block chain in the first place. Miners will obviously pick the articles that pay the highest fee and as a result the first step in the process is an auction. The best writers bid against each other to get their articles published by AP, DAC by paying highest transaction fees.
Likewise, there must be a limit on the number of writers who have a personal market. This could be limited to one new writer per week and they would also have to pay the highest transaction fee to have a market created to speculate on their value as a writer.
These transaction fees add to the profits of owning AP, DAC.
AP, DAC is a new way to align market forces to promote the production and syndication of the highest quality of news content in an entirely decentralized manner that richly rewards authors, readers, and publishers who participate in the system without having to rely on ads, donations, or micro-payments. It is truly decentralized and autonomous and will automatically provide market incentives to produce quality articles while earning a hansom profit for its decentralized owners.
Stay tuned for more DAC ideas in future articles.
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