The questions below don’t just illuminate where manufacturing is headed,
they expose the seismic shifts coming for society, the workforce, and the planet itself.

A Glimpse Into 2040: Six Questions That Will Define the Future of Manufacturing

By 2040, the factory floor won’t resemble the grease-stained assembly lines of the past — it will look more like an intelligent ecosystem where machines negotiate contracts, print living tissues, and produce made-to-order goods in minutes. This isn’t just a shift in tools; it’s a complete transformation of how we design, build, and even think about manufacturing. With the convergence of AI, robotics, biotechnology, blockchain, and decentralized systems, the very meaning of “making something” is being redefined.

This column takes a journey into the future through six fundamental questions — each one revealing a different facet of a manufacturing world reshaped by intelligence, biology, and automation. Will AI and humanoid robots replace all human labor? Will traditional ownership give way to subscription-based production? Can factories print living tissue, clothing that breathes, and smart furniture that repairs itself? As factories sync directly with consumer devices, will retail vanish altogether? Could healthcare become a manufacturing industry? And finally, could the factories themselves become fully autonomous economic entities?

These questions don’t just illuminate where manufacturing is headed — they expose the seismic shifts coming for society, the workforce, and the planet itself.

AI will struggle to replicate creativity, emotional intelligence, moral judgment, and skilled trades requiring adaptability and dexterity.

1. Will AI and humanoid robots replace all human labor?

AI and humanoid robots are poised to revolutionize the workplace, but they will not replace all human labor. While automation will dominate certain domains—like manufacturing, logistics, data processing, and hazardous environments—there are critical areas where machines still fall short. Human creativity, emotional intelligence, and ethical judgment remain irreplaceable. Tasks involving innovation, cultural understanding, empathy, and nuanced decision-making—such as those in education, healthcare, and skilled trades—require qualities AI cannot replicate. Moreover, creative professions like storytelling, art, and music continue to thrive on human depth and perspective.

The most realistic outlook is not full automation but a hybrid model where humans and machines collaborate. Doctors, engineers, teachers, and construction workers will increasingly use AI tools and robotic assistance to improve precision, personalization, and efficiency. This shift will also usher in new roles like AI conductors, digital twin architects, and cobot supervisors. As the labor market adapts, we’ll likely see job polarization, evolving education needs, and policies like universal basic income to address displacement. In this future, collaborative intelligence—blending machine speed with human empathy and creativity—will define the next era of work.

By 2040, MaaS will become as commonplace as cloud computing, enabling businesses to scale production without owning factories.

2. Will Companies Subscribe to Manufacturing-as-a-Service Instead of Owning Their Own Production Facilities?

By 2040, Manufacturing-as-a-Service (MaaS) is expected to revolutionize how companies produce goods, offering a compelling alternative to owning traditional factories. Rather than investing in expensive infrastructure and equipment, businesses will subscribe to flexible, on-demand manufacturing platforms. This model delivers significant advantages: lower upfront costs, reduced financial risk, and the agility to scale operations based on real-time demand. MaaS platforms will support rapid innovation, enabling companies to experiment with custom product runs and iterations without retooling facilities. With constant access to cutting-edge robotics, AI systems, and sustainable processes, manufacturers can stay competitive without maintaining obsolete machinery.

The shift toward MaaS also strengthens supply chain resilience. Distributed networks of localized micro-factories will reduce dependence on centralized production and global shipping, minimizing delays and geopolitical disruptions. Additionally, MaaS aligns with sustainability goals by optimizing material use, reducing waste, and enabling circular manufacturing practices. Industries such as electronics, aerospace, fashion, healthcare, and renewable energy are particularly well-suited for MaaS adoption due to their need for precision, customization, and speed.

While challenges like data security, quality control, and dependency risks remain, forward-looking manufacturers will adapt by transitioning from fixed-capacity models to dynamic service-based offerings. MaaS will democratize manufacturing, empowering startups and smaller players to compete with global giants. Much like cloud computing transformed IT, MaaS will redefine the industrial landscape—making manufacturing smarter, faster, and more accessible than ever before.

Bio-integrated manufacturing will revolutionize healthcare through living implants.

3. How will bio-integrated manufacturing, blending living tissues with synthetic parts, reshape medical devices, clothing, and even furniture?

By 2040, bio-integrated manufacturing—where living tissues are fused with synthetic components—will radically reshape industries like healthcare, fashion, interior design, and even construction. In medicine, we’ll see the emergence of living implants, 3D-bioprinted organs, and prosthetics that heal themselves. Devices will be tailored to individuals, using materials that adapt to the body in real time, enhancing everything from wound healing to implant integration. In fashion, garments made from living textiles could regulate temperature, self-repair, and even perform photosynthesis, ushering in a new era of regenerative, eco-conscious clothing.

Furniture and architectural design will also evolve with responsive materials that adapt shape, filter air, and repair surface damage, while future buildings may include bio-bricks, living concrete, and adaptive facades that respond to environmental conditions. Even electronics and agriculture will benefit, with biodegradable components, self-healing device coatings, lab-grown meat, and edible packaging. However, this transformation raises ethical and regulatory questions about ownership, environmental impact, and the line between organic and engineered systems. Still, the promise is profound: a shift from static, disposable goods to dynamic, living systems that interact intelligently with the world around them.

Physical retail will adapt by emphasizing experiential shopping.

4. When smart factories communicate directly with consumers’ smart devices, will traditional retail be eliminated altogether?

By 2040, smart factories will fundamentally reshape the retail landscape by connecting directly with consumer devices to enable on-demand, personalized manufacturing. These AI-driven, digitally connected production hubs will produce customized goods at scale—tailored to individual preferences in real time and delivered without the need for traditional retail intermediaries. Products like apparel, electronics, and furniture will be made-to-order through smartphone apps or home scanners, drastically reducing overproduction and excess inventory.

While this shift threatens to disrupt fast fashion, electronics, and home goods retail, it won’t eliminate brick-and-mortar retail entirely. Instead, physical stores will evolve into experience-driven spaces where customers engage with products in new ways—through augmented reality, live customization, and instant production using in-store micro-factories. High-end brands, healthcare, and luxury goods will still rely on in-person consultation and tactile exploration.

The future of retail will be hybrid: a seamless blend of digital interfaces and immersive physical experiences. Key challenges—like ensuring data privacy, maintaining product quality, and preserving brand trust—will require innovation and oversight. Ultimately, smart factories will revolutionize how products are made and sold, but the human element of retail will remain, reshaped and reimagined for a hyper-personalized, technology-powered future.

Bio-integrated manufacturing will enable DNA-tailored implants, bioprinted organs, and customized medical devices.

5. If factories can produce biocompatible implants tailored to individual DNA, will healthcare become a manufacturing industry?

By 2040, healthcare may evolve into a sophisticated branch of the manufacturing industry, as biocompatible implants tailored to individual DNA become commonplace. This transformation will be driven by the convergence of AI, bioprinting, gene sequencing, and personalized medicine. Factories—now resembling advanced biomedical production hubs—will fabricate custom organs, implants, and drug delivery systems matched precisely to a patient’s genetic makeup. Hospitals could shift from service providers to localized bio-manufacturing nodes, capable of producing on-demand, DNA-specific treatments, devices, and pharmaceuticals with reduced reliance on mass production.

This shift promises faster treatment, better outcomes, and more equitable access, especially in rural or underserved regions via distributed micro-factories. As a result, traditional pharmaceutical and medical supply chains could be disrupted by agile, just-in-time healthcare manufacturing. Insurance models may adapt to outcome-based pricing, while healthcare professionals take on new roles in bioengineering and AI diagnostics.

However, this revolution brings significant challenges—ensuring data privacy, establishing new regulatory frameworks, and preventing inequality in access to personalized care. If addressed responsibly, the fusion of healthcare and manufacturing could democratize medicine, making treatment not only more precise but more accessible than ever before.

By 2040, factories will operate as self-governing economic entities, using AI, blockchain, & smart contracts to manage operations.

6. Will Factories Become Autonomous Economic Entities, Earning Money, Paying Taxes, & Negotiating Contracts Without Human Oversight?

By 2040, factories could evolve into fully autonomous economic entities, capable of independently generating revenue, managing expenses, and executing smart contracts — all without human intervention. This transformation will be driven by the convergence of AI, blockchain, and decentralized systems. Smart factories will utilize blockchain-based contracts to procure materials, pay suppliers, and dynamically negotiate pricing based on real-time market signals. These entities will maintain digital wallets, handle their own accounting, and even pay taxes automatically through government-integrated systems. Equipped with AI-driven predictive maintenance and robotic self-repair capabilities, factories will minimize downtime and optimize operations without human input. Reputation systems embedded in blockchain networks will ensure accountability through transparent performance metrics like delivery reliability and environmental impact.

Some factories may evolve into DAOs (Decentralized Autonomous Organizations), issuing tokens for ownership and revenue sharing. Industries like electronics, biotech, aerospace, and precision agriculture are especially suited to this autonomous model. While this vision promises increased efficiency and economic fluidity, it also raises profound regulatory, ethical, and workforce challenges. New roles will emerge to manage compliance, data, and strategic oversight — highlighting that even in a world of self-running factories, human ingenuity will remain essential to guide, govern, and innovate the broader industrial ecosystem.

Bio-integrated manufacturing will offer eco-friendly options like
biodegradable electronics, edible packaging, and cultured meat

Final Thoughts: Manufacturing Will Think, Adapt, and Compete — Just Like Us

By 2040, manufacturing won’t just produce things — it will think, negotiate, adapt, and evolve. Factories will behave like autonomous organisms, transacting in digital marketplaces, customizing goods in real time, and even repairing themselves without human hands. Yet, as machines gain agency, the defining question will no longer be what we can build, but why we build it — and who we build it for.

In this future, the edge won’t go to the fastest or the cheapest producers, but to those who can balance precision with purpose, automation with ethics, and scalability with sustainability. The next industrial revolution won’t be driven by machines alone — it will be defined by the humans who dare to design the future alongside them.

What is our real identity, and by that I mean the true, unedited us as opposed to the person we might hold ourselves out to be? Whether a person is religious or not, they tend to describe this reality as their “soul,” their fundamental being and the collection of inherent truths that make them unique and even valuable.

In the near future, it may be possible to collect and store elements of our identity in the form of non-transferable, non-financial NFTs – “soulbound tokens” (SBTs) to be precise.

The concept of SBTs emerged just a few months ago. It was presented by Vitalik Buterin – a co-founder of Ethereum – along with co-authors E. Glen Weyl and Puja Ohlhaver in a paper outlining their vision.

The concept is brilliant, and it has the potential to solve many of today’s challenges.

Over the past several months, we’ve had numerous discussions about whether people should be allowed to have more than one identity in the online world. SBTs have a unique way of answering that question.

When people apply for jobs, prospective employers have a difficult time sorting truth from fiction. SBTs have the potential to solve that challenge.

In many of my keynotes, I talk about the idea of using micro-credits as a way of credentialing previously non-accreditable forms of learning and accomplishment. Again, SBTs accumulated and stored securely in the form of NFTs within the “capital S” Soul may be the exact tool we need for awarding and verifying these kinds of micro-credits outside of academia.

The Next Generation of our Decentralized Society

Until now, most of the focus of Web3 has been on finance-related applications and the accumulation and transfer of assets, including non-fungible tokens (NFTs). These financial NFTs are an asset that can be sold or given away because they aren’t permanently associated with an owner – just like a $20 bill with a unique serial number can move from one person’s wallet to another person’s or to the till at the neighborhood convenience store.

SBTs represent an entirely new asset class for NFT technology. SBTs are NFTs that CAN’T be transferred from a person’s blockchain-based Soul to the Soul of another person or enterprise once they’ve been deposited. SBTs can be granted by an entity that’s qualified to bestow it to others but, again, that’s a one-time, one-way transaction to the worthy recipient’s Soul.

Contrary to fictional books that have people selling their souls to the devil, with this technology it’s simply not possible to give away your soul or sell it, and the same is true with blockchain Souls that hold valuable SBT credentials.

Granted, SBTs won’t necessarily be used to document the emotional side of a human’s being, such as their capacity to love, for example. They’ll document the objective attributes of a person in order to facilitate social and professional relationships in an environment of trust and efficiency.

What’s in Your Soul?

These Souls will evolve to hold SBTs that record every verifiable, official truth about a person. They will accept SBTs from the soul of another entity, quite often an institution authorized to bestow that token to a recipient. Yes, in the future, institutions will have souls!

The Soul will be viewable but not editable or capturable, by any other person. Buterin and his colleagues describe the Soul as being fundamentally publicly accessible, which seems reasonable up to a point. They acknowledge, though, that as the system evolves to capture more varieties of sensitive topical SBTs, it will need to incorporate programmable, permission-based access protocols for certain areas.

A person will accumulate SBTs throughout their lifetime – for education achievements, memberships, professional accomplishments, and personal statuses like parenthood or other relationships. Marriage will be an exchange of vows … and of SBTs, between the two parties and most likely from the institution sanctioning the relationship.

SBTs will also record statuses and experiences – health histories, military service, and travel histories, for example. They’ll document personal vital data like health history, relationship status, and personal identity.

It’s possible, even likely, that SBTs may be revocable by the issuer down the line. If a person leaves an organization, gets a divorce, or loses a medical license, the issuer will be able to recapture the corresponding SBT, leaving a hole in the Soul, as it were.

Information found in SBTs will be compartmentalized. This will be accomplished either through having multiple Souls (e.g., a Soul for academic achievement) or groupings of SBTs consolidated into various topical NFTs in a single Soul.

After all, if you’re applying for a job, you’ll want to provide access only to the portion of your Soul that confirms employment history, education, publications, and patents, for example, all conveniently pulled together into a single NFT or a sub-Soul.

Protecting Your Soul

Blockchain Souls have been described in a way that sounds as if they would have to automatically accept an unsolicited SBT. However, Buterin and his colleagues indicate that the system will ultimately include a feature that allows a user to hide or bury an unwanted or unsolicited SBT and keep it hidden from public view.

Given the opportunity for abuse, let alone revenge and character assassination, it seems reasonable that the system will ultimately include a process in which SBTs will be granted and received through mutually agreed upon transactions.

A case can be made, however, that Souls should be required to accept certain types of SBTs if the system is going to have any fundamental level of credibility. Some would say it shouldn’t be optional to receive, maintain, and make available SBTs related to things like job terminations and police records, for example, lest a person can put forward a sanitized version of their Soul.

SBT skeptics compare this scenario, though, with China’s social credit system, a state-sponsored extension of financial credit ratings that includes information on social behavior in order to come up with an overall “trustworthiness” rating for an individual.

Naturally, we’ll need to find the right balance between privacy and accountability in the SBT blockchain Soul system.

In fact, there are many pieces of the SBT equation that still need to be worked out here. Buterin and his colleagues only released their paper in May of this year. I encourage you to read it.

The world and our future world owe these visionaries a tremendous debt and a lot of respect for presenting this concept and opening up a public discussion for us to digest and react to. No doubt the SBT/Soul system will be refined in concept and hotly debated over the coming months.

The IRS has a lot on their hands right now. The backlog of tax returns they’re facing is staggering thanks to staffing shortages, the need to administer COVID stimulus payments over the past two years and child tax credits more recently, and the fact that 10% of personal returns are filed by paper – in many cases because there’s no other way for filers to submit certain required documentation.

I feel bad for IRS employees, I really do. It must be discouraging to always be behind the curve (or in front of the wave) since it seems that just when backlogs begin to decline, a new filing season opens up.

But their job isn’t going to get any easier in the future. We have an incredibly complicated tax code, and Congress keeps adding to it. That means more errors and more unanswered calls to IRS helplines. Not only that, but we’re on the verge of new reporting complications driven by cryptocurrency and the metaverse.

Taxes will never go away, and this is not about whether effective tax rates will or should go up or down.

Rather, it’s clear to me that in addition to short term fixes to address backlogs, filing errors, the lack of customer/taxpayer support, and the barriers to 100% electronic filing, we are seeing some overarching trends that will invariably cause the collapse of the U.S. income tax system, and by extension, a domino effect of similarly intrusive income tax codes around the globe.

Here are the four future challenges that I expect are keeping Charles Rettig, the current IRS Commissioner, up at night.

1. The Great Resignation

The current labor shortage is working against the IRS in several ways, but I’ll just mention a couple of them.

First, it’s driving up wages in the private sector. According to labor union officials that represent IRS employees, the agency is now competing with the hospitality industry for the same workers in many areas.

Second, it’s a stressful job and it only seems to be getting more stressful every year. And it wasn’t that appealing to begin with. On one hand employees have the stress of working with mountains of paper or dealing nonstop with angry taxpayers on the agency’s helplines. On the other hand, they have the option of doing food service, working for tips, or manning the front desk at a local hotel. It’s understandable that many workers would choose the latter. And IRS managers have little flexibility when it comes to adjusting wages to convince potential workers otherwise.

2. Privacy is taking Center Stage

Our income tax system is quite intrusive, requiring us to provide a lot of personal and financial information. It’s just a matter of time before a cyberattack exposes some or all of that data.

Concerned observers pointed out last year that the IRS technology systems that store records related to personal and business income filings “are the oldest major technology systems in the federal government.” Imagine the havoc and financial loss if international terrorist groups or state-sponsored hackers decided to go after IRS records.

I should point out, this information is necessarily not locked away at the IRS, either. According to these legal service websites, other entities can legally obtain it from the IRS: courts, state treasury authorities, third-party tax investigators, and the Social Security and Medicare programs can all request and receive a business’ or individual’s tax returns and related documents. That means even more data repositories for hackers to exploit.

What this means is that each of us will become increasingly susceptible to blackmail, extortion, ransomware attacks, slander, hacker fleecing, and fraud.

Taxpayers won’t put up with this kind of vulnerability for much longer. They’ll demand HIPPA-grade privacy systems for tax return information, wherever it’s stored.

But more importantly, they will be questioning the government’s need to have access to this kind of information in the first place.

3. The Mainstreaming of Cryptocurrency

Cryptocurrency can be used as an investment or a form of payment for services. Just like buying and selling a share of stock or being paid with dollars, De-Fi transactions are legally subject to capital gains taxation and income taxation, respectively.

That’s easier said than done and it won’t get any easier.

By nature, decentralized finance is confidential and protected by blockchain technology – not the kind of system that lends itself to compliant self-reporting. As more economic activity happens in that space, more of our transactions will become invisible. More pieces of the economy will be invisible and unverifiable. Transactions won’t occur with a single nation and of course, we won’t have a common, single worldwide cryptocurrency.

Due to all these complications, most countries will transition away from a traditional self-reporting income tax to some alternate scheme to collect their due. While countries may attempt to force cryptocurrencies to include systems for monitoring taxable events, crypto-leaders will resist with increasing levels of encryption to obscure actual transactions. It becomes a no-win battlefront for old-school politicians.

Any tax system that resides outside of a blockchain-based system will be vulnerable to hacker attacks. For example, a tax system based on a central bank digital currency (CBDC), i.e., a “digital dollar,” will still be susceptible to hackers since this currency is overseen by a public central bank, and tax records will still be stored on their or other government computers, a sure recipe for disaster

4. Income Tax Becomes Increasingly Murky in the Metaverse

Moving further still into the future, it would seem that virtually every aspect of our emerging Metaverse will be out of sync with our existing archaic income tax system.

When transactions occur and wealth accumulates in the Metaverse is it “real”? Absolutely. But what country did it happen in? Do citizens of a Metaverse community transition into a citizen of a traditional country? Major parts of our economy will be replicated in the Metaverse, so does it make sense to have a taxing authority in that space as well. I sincerely doubt traditional taxing authorities like the IRS are up to the task!

Simplify and Automate … Please!

Once the current, restrictive, return-based income tax system is eliminated, the speed of business will accelerate exponentially. Transactions will occur far faster, priorities will change, and we won’t need an accountant looking over every detail of our lives. Far too much of our economy is dedicated to calculating, monitoring, planning, paying, and avoiding taxes.

Future-proofing the tax system will be a major campaign issue in 2024 and beyond. That debate will include the need to immediately simplify and automate the process. For the IRS – or any new tax system that replaces it – to survive, our government will need to break the habit of automatically turning to the tax code when they want to reward, incentivize, or disincentivize certain behaviors and activities.

One hundred years from now, our descendants will look back at this era and shake their heads at how unnecessarily complex and confusing the IRS house of cards had become. Hopefully, our leaders will transform the system before it collapses under the weight of its own complexity.

Four years ago, I analyzed the benefits, downsides, and challenges related to creating a citizenship rating system that would document a person’s value to society. And we further discussed the topic in a recent podcast interview with Shermon Cruz, Chair of the Association of Professional Futurists.

The idea was that since most human beings tend to be motivated by personalized, objective rankings (FICO scores for example), a universal system that “rewards” us for doing the right thing and “penalizes” us for doing harmful things could make the world a more positive place.

One of the challenges we identified at that time was that there wasn’t a reliable way to capture and account for every personal activity in order to assign it a positive or negative point value. Another limitation was that most governing bodies focused on penalizing people for bad or criminal behavior, but they didn’t have a way to incentivize people for good behavior.

The DAO Solution

Today’s DAOs (Decentralized Autonomous Organizations) provide a model for how we can overcome both of these challenges and accurately quantify a person’s positive citizenship value, so they can be rewarded … or negative citizenship value so they have an incentive to improve.

Much like Santa Claus, DAOs will be able to record if a person has been naughty or nice within that group. And the groups themselves will take the place of traditional governing bodies in many respects, since they replace geography-based communities with metaverse-oriented tribes.

DAO Communities and Governance

Today’s blockchain-enabled DAOs are formed around aspects of social life, community service, hobbies, gaming, investing, entertainment, art, and other areas of shared interests, including ownership of land in the metaverse. Increasingly, we’ll be relating to peers within our chosen DAOs and less with neighbors in the physical world.

Here’s where things get relevant to our topic. Typically, engaging in a DAO requires an upfront entry fee to buy governance tokens that give the user a vote regarding actions taken by the DAO. DAO members often can earn additional governance tokens for actions they take that provide value to their DAO community – participating in meetings, joining and engaging in workgroups, contributing content, and so on. These governance token rewards are tangible incentives for taking positive actions.

Presumably, a DAO could also be structured and maintained to levy fines for users who damage or undermine the venture.

Since a participant’s activities in these DAOs are recorded on the blockchain, there’s really no reason why user activities can’t be recorded in terms of reward or penalty points. For better or worse, our activity in these niches of the metaverse cannot be hidden or slide under the radar.

One Big DAO Metaverse

As the metaverse continues to replicate more and more areas of our physical world, we’ll see DAOs and pieces of the metaverse merge and link to encompass an even greater slice of this alternate life. Games are already seamlessly linking to cryptocurrency finances, for example.

Ultimately, there will be one system and one login to a comprehensive metaverse. And at that point, it will be very easy to assign participants a comprehensive citizenship score or valuation that reflects their contribution or harm within that new world.

DAO Citizenship

This kind of global metaverse will attract a wide range of people – from those who are mildly interested to those deeply involved in every nuance of a virtual world’s DAO.

Early on, some may poke around in it for 20 minutes a day. Others may be involved 10 hours a day. And many will lose themselves in that comprehensive DAO completely, right from the start. If a person wants to remain relevant, though it will be increasingly important that they engage in the metaverse – just as being off the IT grid today can make a person seemingly non-existent.

Our engagement in this metaverse will be monitored, and our true selves will become apparent. As with the physical world, we’ll see all types of personalities: hard workers, observers, innovators, leaders, followers, specialists, givers, takers, criminals, saboteurs, and anarchists.

Our personality types will be recorded and transparent, modified automatically over time as new activities are recorded. On a more immediate basis, our deeds will be rewarded or punished using a point system linked to cryptocurrency. The best metaverse citizens may even be able to make a decent living by being very, very good as resources are shifted to them and away from the penalized participants.

Criteria for Gamifying Citizenship

The standards for an ideal measurement of a person’s contributions to society require that the system it’s based on reflects current realities is objective and is all-knowing. A metaverse-based system meets those criteria.

As I noted in my 2018 column, citizenship algorithms should be adjusted over time, continually redefining what constitutes good and bad behavior based on current needs and situations. Similarly, the relative value of rewards and penalties should be regularly tweaked based on measured supply and demand. The metaverse, with its nearly infinite access to information, can accomplish all this and more.

With regard to the need for objective observation and the transparency of personal actions, blockchain technology will be the “Big Brain” behind the metaverse making all that possible. It will record participants’ activities and interactions and meter out the rankings and the rewards related to that activity.

Citizens of What?

One last thought on the future of citizenship. Blockchain, cryptocurrencies, and the Internet itself transcend government-set boundaries. Increasingly each of us will be “living” in one or more DAOs and then ultimately within a comprehensive metaverse.

Our actions in the metaverse will ultimately be as important in evaluating us as a person as anything we do in the physical world today. And the evaluations will be ruthless and not subject to manipulation or coercion, providing a strong incentive to do the right thing among our global peers.

That said, for those who cannot live up to the rigorous demands of an unforgiving rules-based system, we will likely see underground movements and even gorilla groups forming to fight back against the “tyranny of the DAO.”

No, there is no such thing as a perfect system.

Combine ABC’s Shark Tank, crowdfunding, and decentralized apps using blockchain technology and you have a pretty good idea of the concept behind decentralized venture capital (DVC) markets also referred to as venture DAOs (decentralized autonomous organizations).

DVCs function with the same intent as a venture capital (VC) fund, which privately invests in promising startups. The main difference is that DVCs are collectives of average investors who contribute relatively small amounts to cryptocurrency-based funds to create a pool to support these ventures.

Given their democratic nature and blockchain-enabled transparency, DVCs are going to substantially replace a major portion of our traditional VC system within a decade.

The End of the Insider’s Club

For years, many startup companies and entrepreneurs relied on private sources of capital (as opposed to public equity markets, for example) for the capital resources they needed to scale their companies and take them to the next level.

Twitter, Facebook, Airbnb, Amazon, and others went this route, bringing their early VC investment opportunities to wealthy individuals and pension funds, endowments, and other institutions, who eagerly invested in these companies and reaped remarkable returns.

It’s been an insider’s club. By law, only “accredited” investors and institutions can participate in a traditional VC fund. Accreditation is subject to U.S. Securities and Exchange Commission (SEC) regulations and is based on wealth, income, and measures of financial markets experience.

Democratizing Venture Capital

While the SEC accreditation rules are intended to protect inexperienced and less wealthy investors from bad decisions, they’ve locked out these average investors from lucrative private investment opportunities. But like so many aspects of our lives, blockchain technology, and decentralized financial platforms are leveling the playing field and changing that in a big way.

The recent experience of the ConstitutionDAO shows how this could work. ConstitutionDAO, a decentralized autonomous organization, was a group of 17,000 investors that pooled crypto funds to collectively bid on a privately held copy of the U.S. Constitution.

While their pool of Ether cryptocurrency ultimately wasn’t quite enough to outbid another solo investor, the experience validated the principles behind a DVC fund: thousands of small investors could band together to back, or crowdfund, financial projects within a blockchain-based environment.

Advantages for the Entrepreneur

Moving forward, DVCs will prove to be a boon for startups.

Just as special purpose acquisition companies (SPACs) have provided an arguably easier route to public securities listing for a new company, DVCs will provide a possibly less rigorous pathway for attracting private venture capital.

Also, these days the physical location of a company headquarters is becoming less relevant to its operating success. While traditional VC firms tend to focus on financial mega-centers on the East Coast or world financial capitals, DVCs will remove that geographic bias.

A startup with a strong business plan and model, whether the company is in Des Moines or an island in the Pacific, will be able to compete for venture capital on a more level playing field and attract cryptocurrency financing based on merits, not location.

Further, this future entrepreneur will benefit from the collective, diverse expertise of the online members of the DVC. They’ll have the opportunity to make suggestions to improve the business model, introduce the company to staffing and sales opportunities, and generally serve as ambassadors for the company – all transparently and openly on-chain.

For the Investor

Investors will benefit from DVCs too.

Most importantly, DVCs will democratize these private investment opportunities. It remains to be seen whether the SEC will ultimately step in to apply some type of accreditation requirements to a person’s involvement in DVCs.

Additionally, while traditional VC companies tend to maintain a long-term stake in the companies they invest in, with their investment locked in and illiquid for a period of time, a DVC can allow individual investors to “tokenize” their portion of the asset. As with any other non-fungible token (NFT), this personal stake could be sold, allowing the member to cash out and realize their capital gain much earlier, almost creating an informal security exchange.

Of course, we’ll have to see how the SEC feels about that as well!

The Hazards of DVCs

There’s no doubt that along with the greater democratization from DVCs comes a greater risk of scams or exploitation of small investors.

VC firms are quite thorough when it comes to vetting a business opportunity. And while there’s some safety in crowd-vetting through a DVC, there’s also a legitimate concern about crowd frenzy, misinformation, and investor-spread mania as we saw with various “meme stocks” in the past two years.

Just as with cryptocurrency speculation and investing, we’ll likely see country-specific regulations and guidelines, which could serve to send the activity underground or to a more forgiving location thanks to the global nature of cryptocurrency.

Which Industries will Participate?

Industries that engage directly or indirectly in cyber currency and/or the blockchain will be the most likely to see the benefits of DVCs and pursue these capital assets. For example, startups in the Metaverse demand a new way of doing things, and DVC will be one of the new tools for bringing the Metaverse to life. That comes with a risk to investors, though, as their passion for all things blockchain might be manipulated so they latch on to questionable investments.

We’ll also see DVC funds formed around personal causes, priorities, and passions. For example, there will be DVCs formed to support promising alternative energy startups, minority-owned businesses, women-owned businesses, and region-based development. We’ll see DVCs specializing in certain industries like gaming or alternative transportation, hopefully with investors experienced in those areas.

Will tomorrow’s DVC-financed companies be the better for it? The kind of transparency, open debate, and investor engagement that’s possible in a DVC investing community is certainly different from the singular profit focus we’re more likely to see in a traditional VC.

You have to wonder if Facebook and Twitter would be facing the same kind of criticism and scrutiny today if their business models had been subject to the scrutiny of thousands of small investors in a DVC setting a decade and a half ago.

In a recent podcast interview, Max Galka, CEO of Elementus.io (a “search engine for non-private blockchain”) explained the fundamentals of blockchain-based smart contracts using a travel insurance policy as an example.

In that scenario, a person taking out a travel insurance policy would instantly have the potential payout amount put into escrow by the insurer. If the plane left on time the money would revert to the insurance company, but if it was delayed, money would be transferred to the policyholder.

Departure and arrival times presumably would be defined in the policy in terms of plane pushback, wheels up, and the permission to de-board. Since these conditions are factual and not subject to interpretation, no lawyers or other parties are needed to determine whether on-time departure and arrival was achieved.

This may not be the best example, since policyholders might try to game the system, perhaps by actually trying to delay the plane. And insurance companies don’t have sufficient capital to hold in reserve at all times to cover every one of their possible obligations.

But the illustration makes the point about how smart contracts are self-executing. And they’re about to enter the mainstream of our lives in many scenarios similar to that illustration.

What’s Smart about Smart Contracts?

First, a note about terminology. In today’s IT world, the term “smart contract” is broadly applied to refer to the placement of nearly any program or decentralized application (DApp) on the blockchain.

For our purposes, though, we’re going to explore the concept in the context of smart legal contracts, contracts in the traditional sense of the word – agreements between parties that take the form of programs placed on the blockchain where the provisions are monitored and executed.

In this context, the concept of smart contracts emerged well before the advent of blockchain technology. The person who coined the phrase was a computer scientist, Nick Szabo, who likened the concept to the mechanical technology behind a vending machine.

Mechanisms in the vending machine verify that the purchaser has deposited sufficient money, verify that they’ve made a valid selection, and determine whether change is due. Only then does it deliver the product. No human being acts as an intermediary to verify the transaction – to the chagrin of someone who sees their Milky Way get hopelessly wedged so it can’t fall down the chute!

What does Blockchain Have to Do with it?

Yes, vending machines are pretty smart and they can manage one type of simple transaction. However, they’re not infallible and they certainly can’t manage a contractual home purchase transaction, for example.

In contrast, blockchain is perfectly suited to manage the consecutive “if/when … then” aspects of more complex contractual agreements as they monitor and verify steps of compliance and then authorize subsequent steps.

That’s because blockchain can manage many types of data supporting the contract and can keep that data secure so the underlying contract can’t be subsequently altered. The terms of the contract, including responsibilities of parties and executable actions, are programmed into actionable code.

There’s no middle party, no second-guessing, no varying interpretations, no delays. The contracts on the blockchain are “smart” because they’re self-executing.

The Future of Smart Contracts

We already have smart contracts – most typically in transactions with niche companies that are already in the cryptocurrency or blockchain space.

Smart contracts will very soon be far more mainstream as people increasingly understand and gain confidence in blockchain technology.

It’s curious that so many detractors impulsively say they’ll never place these kinds of legal agreements in a blockchain environment because blockchain isn’t 100% secure. They’re ignoring the fact that the IT infrastructure at the average bank, brokerage house, or savings and loan is hackable and fallible too.

What kinds of transactions and contractual agreements can be managed through smart contracts? Pretty much any financial transaction – loans, insurance, investments, renting, wagering, and purchases – can and will be secured and policed on blockchain systems in the future.

The Future of Smart Contracts

But can smart contracts be used to enforce non-monetary agreements? Those might be harder to structure, and as a result we’ll see more and more agreements that include a financial element.

Take the case of written, non-financial agreements between two companies, for example regarding swapped services or an understanding that one party will receive preferential service levels. It’s more difficult to craft a smart contract that automatically guarantees satisfaction to the injured party when no financial penalties are on the line.

Disputes stemming from these kinds of contractual arrangements currently might require an attorney or a session in small claims courts. However, in the future these kinds of service contracts will include some type of financial guarantee – a deposit, for example, can easily transform this agreement into one that can be policed, managed and enforced through a smart contract.

Remaining Challenges

Before smart contracts are more widely used, there are two primary concerns and downsides that will have to be addressed.

First, to place a contract onto the blockchain, all of the necessary legalese has to be written into computer code. Lawyers are not typically coders and coders are not typically lawyers. This requires an element of trust and expertise so the parties can be confident that the code within the smart contract truly reflects the legal intent.

Second, a blockchain-based smart contract is “written in stone.” The blockchain is decentralized, and usually that works for the good. But it also means that there’s no central authority or referee who can step in if one party feels aggrieved or even conned.

Those issues will be resolved over time. On the first matter, as more and more smart contracts are drawn up, they’ll serve as templates for similar agreements. And for more complex legal matters, we’ll see the emergence of a new specialty that bridges the gap between traditional and coded legal drafting.

Regarding the issue of fraud, no doubt the legal profession will attempt to try to step in to serve in some capacity as a legal recourse. More likely, though, the IT community will design a decentralized way to adjudicate these cases.

More and more aspects of our lives are being automated – cars, trucks, automated grocery checkouts … and these functions certainly have the potential to make things run faster, cheaper, and safer. But like truck drivers and grocery checkout clerks, you can now add certain legal contract specialists to the list of soon-to-be-displaced workers that will need to reinvent themselves in the future.