Post-blockchain Smart Contracts Creating a New Firm

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The new cryptocurrencies and post-blockchain smart contracts make it possible to leave behind the simplistic finance model of the industrial corporation.

What is still the mainstream model of the firm was born when the typical company owned and operated a manufacturing plant. Entrepreneurial investors put up the capital which was used to build the factory. The initial investors, the shareholders, were the only parties with significant assets tied up and at risk in the enterprise. This is the historic reason why shareholders are the “residual claimants” to the firm’s income. Residual claimant means that the shareholders get their compensation last, if something is left after creditors and employees are paid. Claims by creditors are fixed and employees typically have negotiated compensation principles in advance of doing something. Payments to creditors and employees are thus seen as independent of the performance of the company.

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