History of the Swarm
The Swarm has been rolling out its vision one step at a time, starting with the legal framework of collaborative organizations, building out blockchain powered interfaces, and allowing a new world of abundance.
Humble beginnings
In January 2014 Joel Dietz decided to roll up his micropayments startup. Dogged by regulatory concerns, he had adopted a fairly conservative approach and began to roll it out within various smaller testbed communities. This did not scale well and after conversations with notable contributors to research in this area, including Clay Shirky and Nick Szabo, he ultimately decided that micropayments, while undoubtedly a fascinating new possibility in the world of digital currency, were not the value-add he had originally envisioned.
One fascinating demand he had found during his interactions with communities that considered using his system was a demand for their own internal currency that had a component something like equity. That is to say, it was a token that would reflect the value of that community and increase as the community’s reach increased. This allowed a wider degree of engagement and accountability.
Just before this Joel Dietz had read the Ethereum whitepaper, which described some fascinating applications of smart contracts. He began promoting Ethereum at events he helped organized in San Francisco and Silicon Valley . He also worked closely with Decentralized Autonomous Technologist Joris Bontje to create a series of educational videos on smart contracts and new organizational types.
Distributed Governance
One topic loomed larger than all the rest, governance. While it was already possible to create “on demand” currencies, more often than not there was no way to ensure that they reflected any sort of baseline value. The Bitcoin network enforced scarcity, but had not provided any obvious mechanism to increase value.
This new interest led him to co-found the Decentralized Autonomous Society with the person who would later become the Community Manager for Ethereum. Somewhat unlike the often anarchist tenor of the Bitcoin community, these participants were particularly interested in making governance evolve to include greater degree of participation and accountability — decentralized governance for a decentralized economy.
Around the same time Joel began to write about the potential of cryptocurrency crowdfunding, something that other influential people had also started to write about. He saw crowdfunding as the logical first step to implement the vision contained in his distributed governance whitepaper.
Dawn of Cryptoequity
Joel Dietz ultimately decided that the time was right to start a new project in this area. Building off of the enthusiasm in the Ethereum Silicon Valley group, which had grown to over 200 people in the first sixty days, he organized a crypto-founder speed dating event. Several people expressed a particular interest in this idea and gathered at a lunch later that week. The working title of this idea was “Coinify.” The next week Chinese VCs visiting at Stanford became excited and threw down a term sheet.
After some inner turmoil, Joel decided that “Coinify” was not the embodiment of the spirit he was trying to create and spent time with Belgian designer Jef Cavens. They decided to crowdfund with cryptoequity instead of VC money. They returned to Europe, where Joel had lived recently, and they ran launch campaigns from Europe, including events in Vienna, Berlin, and London.
After some influential endorsements and support from other influential people in the 2.0 space, including a dogecoin contribution by Vitalik Buterin, they raised approximately $1mm in Bitcoins and other assets over the course of 33 days.
Digital Democracy
One of the interesting goals of Swarm was to provide both a platform for launching projects and the initial mentorship and funding to get them going. In the initial proposed budget, a rather large amount was directed towards these activities, which they called a “distributed incubator.” However a critique was often made that they should first build the platform, then separately launch the incubation activities.
This lead to the first attempt at digital democracy. Members of Swarm were asked to approve a change to the sale parameters that reserved 68mm Swarm stakeholder rights for a future sale. This was approved by approximately 80% of SWARM members in the first ever blockchain vote.
Controversy
Over the course of the crowdfunding new Swarm agents had come on board on a near full-time capacity. These included Pavlo Shandro, who coded up the frontend, Caterina Rindi, a sharing economy global enthusiast, Colleen Sollars, previously director of operations at Couchsurfing, Susanne Tarkowski Tempelhof, and Ben Ingram.
Members of the founding team disagreed substantially on how the remaining SWARM out of the 24M were to be distributed. Those earlier a part of the core thought that they should simply be distributed pro-rata to SWARM holders, but at least one team member insisted heavily that this would disturb the market price of the asset and should be avoided at all costs.
This led to a second Swarm vote on what should be done. In the end, Swarm members chose to distributed the unsold SWARM pro rata as per the original understanding of the other founders.
These votes illustrated both the promise and perils of blockchain powered governance.
“What you want to do is not possible”
Another controversy soon developed. Although their first launch, Comiccoin was successful in promoting a very nice graphic novel around Bitcoin and raising money to do so, there were numerous legal issues. For example, Comiccoin founder Alex Preukschat wanted to distribute not just books, but also future profits to people who supported the project — a similar set of problems related to projects that applied to Swarm later on. Swarm Ops, created by Swarmwise author Rick Falkvinge, and the Decentralized Dance Party both wanted to distribute dividends. Other projects wanted to sell actual equity.
Strangely, in United States it is generally not possible to give out anything of financial value in return for a crowdfunding campaign. Because the Swarm had relocated to Palo Alto from Europe, they engaged with the top legal talent in the United States to see what was possible. Time after time again their lawyers told them, “No, what you want to do is not possible.”
Core team members had very strong opinions on this matter. Susanne, who went on to found BitNation, had already promoted cryptoequity in such a way that indicated it was outside the legal system. Similarly, other members were not from the United States and saw no reason to especially accommodate the particularly strict regulatory framework of the United States.
Joel Dietz, however, doggedly insisted that the more ambitious thing would be to actually solve the relevant issues by creating a new legal framework that included collaborative governance. He urged patience as he wandered around, presenting first at the Harvard study group on cryptoledgers, and working with Primavera of the Harvard Berkman Center to organize a whole legal summit at Harvard with the specific intent of creating a working paper addressing the various concerns around cryptoequity. They were greatly helped by other participants in the space, including Coin Center, Katten Muchin Rosenman, Perkins Coie, and Seven Advisory, who went on to create new types of legal documents like the first convertible coin note, peer to peer coin production license, and automatic hashed contract integration.
Distributed Collaborative Organizations
At these events, including related events at MIT and Stanford, lawyers asked the question of how distributed organizations hosted via blockchain (DAOs) could be integrated with the existing legal system. Many other participants in the space had simply done a “product sale” and then created a traditional non-profit. This did not satisfy the Swarm as it locked the project into old world governance models.
The purpose of the Swarm was to help those models evolve. So at Harvard we invented a new type of organization, something like an LLC but specifically for blockchain organizations. It can largely be credited to two pioneers in the legal world, Houman Shadab, who incidentally suggested many of these concepts, and Primavera De Filippi, who was the pivotal figure in the conference organization. Swarm, not entirely incidentally, was structured in this way from the very beginning, again, largely the evolution of governance to more participatory forms was part of its founding idea.
One key feature of these organizations is that they are structured as partnerships in which those who hold stakeholder rights have real control over the future of the organization. This allows organizations with a participatory or democratic component to easily scale globally. This reflected two core theses that had evolved during the course of the Harvard workshop. First, that other types of non-participatory token sales were likely to be viewed as securities. Second, that crowdfunding without this participatory element was likely to lead to an end result of a “Occulus Rift” type scenario where interests of others were prioritized over token holder interests.
Real Artists Ship
After the summit, the Swarm’s full focus became to fully automate the creation of Distributed Collaborative Organizations according to the legal outline established. This was consistent with the original pledge in the Swarm manifesto “gradually introduc[e] elements of cryptoequity as the legal framework is established for them.”
Swarm had helped establish the legal framework, now it was delivering the solution. Along the way, several core team members whose competencies were less technical drifted towards a lower level of engagement. The core team that was left was deliberately very similar to a classic Silicon Valley startup model. Five out of seven core team members were engineers by training.
After our first release of the Bitcoin Comic, we worked on fully automating end to end process of creating a project, allowing token issuance, governance, funding, and associated legal contracts. As previously, it was always our thesis that adequate coverage of the governance aspect should accompany funding in order to fit into the DCO model. We also began developing the full smart contract capable solution. This was made possible via collaborations with another project formed on this DCO model, VAPOR, which is a fully capable Ethereum client written in Javascript and embeddable in a web page. The Weifund project illustrates what can be done. This illustrates the ideal modular design we see as part of “programmable governance,” as well as the evolution to web 3.0 in which the fundamental baseline architecture is distributed and more efficient than mechanisms which rely on mountains of regulation.
Drip drip drip
All startups have a ticking clock when it comes to finances, especially because it often takes a long time of development before they can become revenue positive. Unlike some other prominent projects in the space, Swarm kept virtually all of its holdings in Bitcoin. The drop down to near $200 from the near $600 that it was at during their initial crowdfunding turned the $900,000 to approximately $300,000 (approximately $100k went to legal and other costs during the sale). Initial budgeting was projected out over 18 months, but this drop greatly reduced this possibility, leading to some budget crunches.
In general, the goal of Swarm has been, following Silicon Valley startup logic, to be “ramen profitable” as soon as possible, which meant that core team stipend and expenses have been kept at a bare minimum (the initial founding team, for example, consistently maintained a 5 BTC a month stipend). Other initial related expenses, like the Swarm house, have been made revenue positive leading to an extremely low burn rate relative to the number of people working on the project.
Emergence
One of the most interesting things about Swarm is that it is best described as a network. The things that make a network robust are often an embedded culture that emanates out of a shared set of values and produces better results than those who are focused on short-term delivery.
Although Swarm has a core team that is primarily developer focused, it also has an incredible network of agents that participate in a variety of ways. Our project review process is run by agents. The team status page was made by an agent. The graphic you are seeing was made by an agent. Many press mentions were referred by agents.
Although the outward face of the Swarm has been fairly quiet as we have engaged in the legal research and product build out, this is about to change. This is because real change requires not only technology, but also community. And the Swarm technology is all about empowering community.
Abundance
At this time the fully automated end to end launch process is ready. We’ve also worked closely with old and new Swarm projects to integrate them with the new DCO model. This allows us to follow our original model of distribution to allow a network effect. This is like a Swarm basic income. Everyone in the Swarm gets value every time something of value is created. All kinds of contributors receive this value, whether they’ve contributed financially or in some other way.
We also are lucky to have a new member of our executive team, Andrew Cook. Andrew Cook, who founded what became the world’s largest Bitcoin investment fund at age 20, once told me, “Never before have I seen a trillion dollar market.” He adds a wealth of experience in operations, building companies from scratch.
We believe this is a massive once in a lifetime opportunity because it gives the people a new voice. Not merely the ability to vote in an election that may be rigged from the top down, but the bottom up ability to create their own reality.
Many times people think that the Swarm is too disruptive for Silicon Valley, for a country in which Wall St. has more power than Main St. Whether or not that is the case, the Swarm is committed to creating a collaborative future.
A future that we will create together.