The late 90’s early 2000 dot com bubble was a period of creative destruction and the drawn out collapse of businesses. Many companies attracted amazing talent, built new technology, raised capital, flashed brightly, and burned out quickly. Rapid growth followed by rapid downfall. But as companies started to fail, their technologies remained salvageable through strategic Mergers & Acquisitions (M&A).
There are similarities with the present crypto asset space. Crypto communities creating new technologies, with access to immense capital, and incredible talent creating solutions to global problems. Crypto also experiences amazing growth and rapid downfalls. The difference though, is that there is no M&A in crypto and there probably can’t be. Meaning that failed crypto projects are unlikely to be usable by other more successful blockchain organizations. (I can imagine there are exceptions to this point on usability)
What’s The Root of M&A?
It’s not feasible for one blockchain organization to buy another, combining the two entities. At least it’s not practical for decentralized blockchains. Specifically, I’m talking about DAOs (decentralized autonomous organizations) like the Bitcoin blockchain.
These decentralized communities would struggle to find the consensus needed for acquiring outside organizations. And in many cases, these organizations couldn’t make direct use of rival blockchains. Instead of buying or merging a dying blockchain technology with another, I propose an alternative approach. Using something else as a proxy for M&A to gain similar results.
At the heart of M&A is the acquisition of capital such as intellectual property (IP), money, and people. IP has both physical and informational elements to it. And blockchain communities (like all business entities) must focus on acquiring the Information Capital aspect of other blockchain intellectual property. Instead of buying companies and tech stacks, they should focus on attracting the people that built built the IP to retain the information capital.
Decentralized Autonomous Organizations
A DAO is software that creates automated rules based decisions using a network consensus mechanism. ie: Decisions are made using majority rule and enforced by automated software. As a blockchain network grows, it’s becomes unlikely that complex decisions outside of the originally designed purpose can be agreed upon. Like for example, M&A. (Again, there are likely exceptions to this point)
In the stock market, companies operate like a representative democracy in that shareholders elect a board to act on their behalf. But with DAO’s, there are typically no top-down decision-makers that can work together to negotiate and agree upon complex transactions. Instead, these organizations rely on a decentralized and more pure democratic process. Voting in these cases, is more direct and issue based.
In the event of a disagreement or lack of consensus, the network can conduct a fork. A fork is like a split or schism of the community and it’s computing power. A likely outcome when communities are faced with contentious issues like M&A. To be honest, I am not even sure if it’s technologically feasible to combine blockchains.
The point is that in decentralized crypto land, it’s unlikely an acquisition that combines two underlying technologies will take place. It’s more likely that two similar blockchains would face a battle of attrition. With one slowly dying out as the other leeches resources from it in terms of computing power, human resources, and the coveted network effects. There is no quick end in this scenario.
Decentralized Governance: Crypto’s M&A Proxy – Information Capital
But I want to focus on what I believe will become a surrogate or parallel M&A concept in the crypto space. I want to talk about information capital assets in the form of niche engineering experience. And how blockchain communities can conduct “M&A” by funding and “poaching” top talent from other technical projects.
The goal should be to acquire people with specific knowledge rather than directly acquiring features to integrate in a specific blockchain. In this case, it’s more likely to gain consensus from the network to go after an individual than an entire network.
And this strategy makes sense given the digital world is neo-medieval in nature.
Think of the crypto community like a giant kingdom, made up of unique principalities and jurisdictions of intellectual thought. Within these principalities you have princes and princesses with varying degrees of influence. An engineer like Vitalik Buterin, an idealist like Roger Ver, an influencer and investor like Anthony Pompliano, and so on. Their wealth and prestige is manifested from the unique information capital they acquire over time. This includes engineering prowess, experience, evangelical abilities, and access to networks and other forms of capital.
The Neo-Medieval Nature of Decentralized Governance
The digital world is a modern adaptation of medievalism where non-state organizations or sovereign authorities compete for power over a group of people. These organizations can implement rules and establish processes for the group that follows them. Sometimes, these rules come into conflict with one another because they come from overlapping authorities.
An overlapping political hierarchy was common in medieval times when the regional feudal nobility, the church, and national level sovereigns were forced to coexist. Each organization had rules and authority over their constituencies. Sometimes the church was in conflict with the nobility or a sovereign over the control of the people. In some cases, this conflict of authority led to the fragmentation of power.
In this essay’s example, rival decentralized organizations compete for technical talent, followers, capital, and the growth that comes from each. All while existing under the common cryptocurrency/asset and globalized digital systems umbrella.
Human’s As a Proxy for Intellectual Capital
The digital and global nature of blockchains are increasingly characteristic of technology in the digital age. Resources and knowledge are distributed around the world which makes traditional business integrations challenging. The key to keeping these distributed systems in harmony is the degree to which their underlying systems are designed to be interoperable. And the true method of interoperability between digital systems with decentralized governance mechanisms is the people in their global networks.
In the end, human’s as a proxy for M&A highlights the important business concept of investing in people. In the decentralized arm of the digital world, you may not be able to acquire and combine blockchain technologies, but you can attract the talent with the intellectual capital to create a circuitous path to similar results.
This concept of people and information capital assets becomes even more relevant in a digital world with more decentralized governance. Especially as it eliminates many opportunities for M&A. The primary point is transferable to the digital world as a whole. As an individual, you should work to enhance your own intellectual capital.
Because information capital assets are what is valued in the digital age.