Experiment and Scandal

We are living in a time of great experiments. They are not happening in the lab. They are happening in the real world. And they are being financed by real people. We are witnessing the de-institutionalization of experimentation. We are returning to a time when anyone can be an inventor and innovator. Some of this has happened because of the explosion of venture capital, both in the US and also around the world. Some of this has happened because entertainment and culture has embraced the world of experimentation and innovation (Shark Tank, Silicon Valley). Some of this has happened because the tools for innovation and experimentation have become mainstream and anyone can use them.

I am not thinking of one thing. I am thinking of many things. I am thinking of The DAO. I am thinking of Bitcoin and Ethereum. I am thinking of Oculus getting financed on Kickstarter. I am thinking of the launch of equity crowdfunding for everyone in the US last week. I am even thinking of things like Theranos.

All of these things are great experiments that will produce great benefit to society if they succeed. But by their nature experiments often fail. They need to fail. Or they would not be experiments.

And one of the challenges with the de-institutionalization of experimentation is that some of these failures will be spectacular. Combine that with the idea that these experiments are being funded by real people and the idea that the world of media/entertainment/culture has injected itself right in the middle of this brave new world and you have the recipe for scandal. And scandal will naturally result in efforts to put the genie back in the bottle (Sarbanes Oxley, Dodd Frank). And these regulatory efforts will naturally attempt to re-institutionalize experimentation.

I find myself wishing we could keep the dollars invested and hype down when we do these massively public experiments. But the dollar/hype cycle is a natural part of being human. Some dollars are invested. We get excited about this investment. We talk it up. More people find out about it and more dollars are invested. More of us get excited about this investment and we talk it up more. Rinse, repeat, rinse, repeat and you get unicorns and distributed autonomous funding mechanisms entrusted with hundreds of millions before anything has even been funded. Eventually some of that gets unwound and the tape is full of red.

Don’t get me wrong. I am all for distributed autonomous organizations and the innovation behind them and in front of them. There isn’t much out there that I am more excited about. But I am also very fearful that this could end badly. And even more fearful of what may be foisted on us by well meaning regulators when that happens.

So let’s celebrate this incredible phase of permissionless innovation we are in. And let’s all understand that we will have many failures. Some of them spectacular. Money will be lost. Possibly hundreds of millions or billions. Let’s expect that. Let’s build that into our mental models. So when that happens, we can suck it up, deal with it, and keep moving forward. Because an open permissionless world of innovation that everyone can participate in is utopia in so many ways. The good that will come of it will massively outweigh any bad. But bad there will be. I can assure you of that.