Why do we need a contribution accounting system?

First published on 3 January 2014 and last modified on 26 August 2026

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NOTE: Before 2017 Sensorica used the expression ''value accounting system''. The current expression in use is ''contribution accounting system''. See more on the OVN wiki. The origin of this modification is a redefinition of value, inspired by Tibi's essay ''Scale of social structures''.

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With the advent of the Internet and the development of new digital technologies, the economy is following a trend of decentralized globalization. The most innovative environments are open source communities, while peer production is on the rise. That is the crowd that innovates and produces. But the crowd is organized in loose networks, it is geographically dispersed, and contributions to projects follow a long tail distribution. What are the possible reward mechanisms in this new economy?

Our thesis is that in order to reward everyone who participates in p2p economic activity, and thus to incentivise contributions and make participation sustainable for everyone, we need to do contribution accounting: record everyone's contribution, evaluate these contributions, and calculate every participant's fair share. A method for redistribution of benefits can be established on top of this contribution accounting. If this method is transparently exposed at the beginning of the economic process, it then constitutes a contract among participants, and it allows them to estimate their rewards in relation to their efforts. We call this the contribution accounting system (CAS).

For the rest of this article we will try to explain why a CAS is needed in a more decentralized economy, and unavoidable in a global p2p economy.

Contribution accounting and exchanges 

First, we need to make a distinction between a contribution accounting system and an exchange system.

Suppose that we have 3 individuals picking cherries using one basket. The CAS keeps track of how many cherries everyone puts in the basket, so that when they sell the basket at the market they can decide to redistribute the revenue based on everyone's contribution. It describes how contributions from multiple individuals amalgamate into a product (the basket of cherries), during a co-production processes (picking cherries).

Once a product is created, i.e. once the basket is full and ready to go to market, it can be exchanged, using an exchange system that can be of various types: barter, currency-mediated transaction, etc.

The CAS is not a currency, nor a barter system. It doesn't refer to an exchange between our 3 individuals who are picking the cherries, nor between them and another entity, company (hey are not getting paid a salary in exchange of their work). They are collaborating, they all add cherries into the same basket, which is their product to be. The exchange might occur at a later time, after their basket is full and ready to go to the market. Meanwhile, they all share the risk of having their cherries being eaten by birds, or of not getting a good price for their basket.

Production processes

A production process that requires more than one individual can be based on one of the following arrangements, or on a combination of them:

• stigmergic coordination -  Participants don't have aligned goals, don't maintain a relationship other than being contributors to the same process. Ex. this is how Wikipedia is built. 
• cooperation - The goals of participants are not necessarily aligned. Ex. in a corporation employees and business owners usually have divergent interests and goals. 
• collaboration - Requires a large degree of alignment in goals. Ex. a group of individuals climbing a mountain together. 

The traditional capitalist economy is mostly about cooperation, which doesn't require an tight alignment of interests and goals. Production is sustained through an exchange process, where workers exchange the time they spend on different tasks against wages. The exchange process transfers risk from workers to the owners of capital, but at the same time, the workers are stripped of their rights to the output of their labor. Workers cooperate (despite some inconveniences and misalignment in interests and goals) with the owners of capital in production processes because there exists an economic dependency between the two groups. Workers need money, which are by far the predominant means to acquire basic necessities. On the other side, the owners of capital need labor to generate more wealth. This economic dependency is not symmetrical and makes the system prone to abuse, which explains the existence (and necessity) of unions to counterbalance the tendency for exploitation. 

In peer production we have a blend of the 3 arrangements mentioned above, with stigmergic collaboration being very present. In general, no one works for anyone else. Everyone involved is a peer, an affiliate of a peer production network. The p2p culture prescribes that the output of a collaborative and participatory process should not be owned or controlled by anyone in particular, but shared among participants in a fair way. Immaterial artifacts that are produced in such way (such as software or hardware designs) are usually released as commons (they are openly shared, under open source licenses). Material goods can be exchanged on the market, and the revenue generated is shared among all the participants. Service-based models also exist, where services are exchanged on the market against some form of payment, which is redistributed to everyone involved in providing the service. A good example of service-bases p2p model is the Bitcoin network. If we focus only on the mining aspect, minors form a open network of peer participants, they collectively maintain the hardware infrastructure of the entire network. Minors are rewarded in proportion to the computing power that they provide to the network. 

The normal and the long tail modes of production

In the traditional capitalist economy wages should be regulated by the free labor market, if we make abstraction of all sorts of mechanisms through which this market can be biased (labor unions and governmental intervention included). The market is responsible for the difference in salary between an engineer and a clerk. The notion of job implies that a salary is determined and agreed upon before the employee starts working (with the possibility modify the salary based on performance). Since the amount of $ per hours of work is pre-established, the capital owner needs to make sure that the employee produces enough during the work hours. Therefore, a new role is needed within the organization to guarantee this, the beloved project manager. Traditional organizations spend a lot of energy doing time management, because usually the interest of the worker is not perfectly aligned with the interest of the capital owner (see cooperative production above). Traditional firms operate on the normal mode of production (from the ''normal curve'' or ''bell curve''), where the number of workers is minimized, and the majority of employees in a category of roles produce almost the same amount. Very few workers produce less than the norm, because they are eliminated (i.e. fired). Very few produce more, because there are no incentives to do so, the association with the mission of the traditional enterprise is weak, the sense of belonging is usually low (usually fabricated by the HR department), the sense of ownership is almost absent, etc.

The situation is very different in a peer production environment, which is open to participation, is decentralized in terms of allocation of resources, and uses a horizontal governance system. In peer production, we see a log tail distribution of contributions, which means that a very large number of individuals are involved in production, only a very small percentage of those contribute a lot, the great majority of them contribute very little, and most of the production is done by those who make small contributions. A prearrangement on revenue is impossible in this context. First, because the production process is very dynamic and relations of production cannot be contract-based. Second, the process involves a great number of individuals that are distributed all over the planet, therefore it is impossible to do time management. Moreover, no one can force anyone else to work more. In this mode of production we need to evaluate rewards after the fact, based on deliverables or based on the type of activity and its potential to increase the probability of production of valuable products. A system is needed to account for everyone's contribution, to evaluate these contributions and turn them into rewards.We call this an access to benefits algorithm. In some sense, the access to benefits algorithm is a distributed solution to time management, which can be applied to large scale and very dynamic peer production processes. It embodies positive and negative incentives, and can contain parameters to influence individual participation and quality of contributions, it can regulate behavior, it gamifies production. For example, a reputation system can be tied to the access to benefits algorithm: a higher reputation results in a higher reward, all other things being equal, and vice versa. Moreover, it can also contain parameters to incentivise periodic and frequent contributions, and to prioritize important processes. 

Contribution accounting and network resource planning

The long tail mode of production needs a contribution accounting system in order to allow fair redistribution of rewards. It allows participants to record contributions of various types and it uses an access to benefits algorithm to turn them into benefits. But this is only the first part of the story.

In the OVN model contributions are attributed to the creation of resources, which can be documents, designs, parts or full prototypes, etc. (some contributions go into infrastructure of community development and they lack clear resource or deliverables). From the resource level, contributions aggregate at the project level. A project is an open venture, or a business unit. It is the smallest unit within the OVN that can generate all sorts of benefits, including revenue.

The fact that contributions can be attributed directly to resources (not projects) is very important for commons-based peer production (CBPP), which builds on open source. On Github, pieces of open source software (OSS) can be picked up by someone and remixed into something else. Open source hardware (OSHW) development follows the same path, i.e. designs (mechanical, electronic, optical) are forked and remixed. This ability to fork and remix parts of more complex systems makes open source development a very efficient process. This explains why modularity and interoperability are very important properties of OSS and OSHW. If rewards are envisioned for the work done, CBPP needs to find a way to account for contributions at the resource level and to track the way resources are put together in different contexts (projects are considered contexts). If contributions are only recorded at the project level, projects become silos of economic activity with a reduced possibility of benefits flows between them.

Taking into consideration the structure of OSS development, the solution to the benefit/reward redistribution problem is to attach some information to individual resources created that allows their reevaluation later, when they get remixed and integrated into larger systems, in other contexts. The metrics of evaluation can vary depending on the context. This is the role of the network resource planning system NRP, which allows benefits/rewards to propagate upwards through value streams and the creation of a single resource can generate rewards from many different sources (many projects), depending on how many successful projects are using it.

This goes even further, because this same NRP also provides a growth mechanism for CBPP networks. To illustrate this, imagine that members of a CBPP community decide to attribute equity to resources that are created by other communities. (Example: Sensorica decides to integrate a piece of open source hardware developed by another OSHW community). First, why would Sensorica affiliates decide to diminish their revenue by giving equity to other groups when they can just copy the open source design? The economic rationale is to reduce efforts required to internalize new capacity (new knowledge and know how around that piece of open hardware) and to increase the speed of execution (a first to market advantage). CBPP networks grow by affiliation. By offering equity to other CBPP communities they are essentially building bridges to innovate faster and improve production processes. This is the higher-level structure of networks-of-networks (see the NOICE project)

We believe that in order to sustain the CBPP we need to create infrastructure that allows attribution of value-related properties to individual resources, to allow reevaluation of these individual resources in context, and to facilitate the formation of networks-of-networks that preserve the individuality of every community part of it, but at the same time brings them together on the same economic platform.

Contribution accounting in transition models

As the economy transitions to a networked state, existing organizations are trying to adapt. We already see traditional corporations going from in-house R&D, to outsourcing R&D and more recently to crowdsourcing R&D. This movement is forced by the need to innovate fast, and by the fact that open source lowers the price to a point where traditional high-tech corporations can be put out of business. Crowdsourcing R&D means utilizing all sorts of schemes to attract the participation of the crowd into innovation processes that are sponsored by these corporations. In early crowdsourcing practices corporations tried to control the innovation by signing non-disclosure agreements with the participants. Crowdsourcing platforms were created to match corporate projects with skilled individuals. The practice was competitive, i.e. the company would chose a winner among different proposals, and usually the winner was rewarded with money. This practice gradually became more open, since the first iteration of crowdsourcing platforms were not very successful in attracting highly skilled individuals. In order to attract innovation, in order to grow open innovation communities around them, corporations need to think seriously about the reward mechanisms they put in place. It is not so difficult to understand why the early crowdfunding platforms were not very good attractors. I would not compete in a call by a company to design something for a few bucks, with a good probability of losing the race, knowing that the company will monopolize the work and probably make a lot of profits on it. The trend is to go from closed crowdsourcing to truly open source innovation, which must be accompanied by a broadening of the reward system. Since companies are going to deal with the crowd more and more, they need a contribution accounting system to account for contributions. See this presentation by Sensorica making the distinction between competitive crowdsourcing and collaborative crowdsourcing.  

In parallel to the adaptation of traditional companies we also see the creation of hybrid organizations and models. For example, in the realm or hardware, we have the emergence of ecosystems like Arduino and 3D Robotics/DIY Drones. They are composed of a traditional for-profit organization surrounded by an open source community. This post describes the situation. The difference here is that in most cases the open source community pre-existed the traditional for-profit, the later being created to manufacture and to distribute the products that are based on the innovation created by the open community. These hybrid models, the ones that are sustainable and successful, maintain an precarious equilibrium between the profit motive that can arise within the centralized traditional organization the open and sharing culture within the open innovation community. In some cases, this equilibrium is not maintained and the synergy between the two entities disappears, destroying the ecosystem. This was the case of Makerbot and the RepRap community, well captured in the Netflix documentary Print the Legend. 

By Tiberius Brastaviceanu

 AllOfUs

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NOTE to the authors: this text is also published on the P2PF Wiki. Modifications done here must be also done there. 

Open source hardware meets the p2p economy

We are at this particular moment in history when we can say with certainty that open source hardware (OSHW) is economically viable. The video below tells the success story of Adafruit Industries. Barely formed, this business model relying on OSHW might already be obsolete. A new model, the open value network, is already threatening to transform the landscape of the open source economy. This article explains why.

Most people find it counter-intuitive that companies that sell high tech open source products can survive in a highly competitive capitalistic environment, giving away their recipes, AND allowing (even encouraging) everyone else to copy them, WITH THE RIGHT TO MAKE COMMERCIAL USE. If you don't believe that this is possible stop wasting your time arguing against it. It is real, it is here, you better understand it fast before the world becomes a strange place for you.

The business around open source innovation cannot be learned in school. It belongs to a new economic paradigm. Old arguments don't apply because the semantics and the logic are not the same. Some time ago, we published the article How to play the open game in the present and future economy, which tries to capture the essence of sustainable open source innovation. This article is constantly revised, so we encourage you to revisit it from time to time.   

The most successful ventures built around OSHW, like Arduino, Adafruit, Sparkfun, etc., can only be understood within their larger ecosystem. We can identify two main structures: a commercial entity and a community. The commercial entity is a traditional legal form, usually a corporation or a co-op. It takes care of manufacturing, quality assurance, structures and integrates the feedback from the community into new products, nurtures the community, performs legal functions, integrates all the transactional logistics (storage, shipping, payment), and provides services. The community plays different roles: early adapters for products testing and providing feedback, consumers, propose new features, spread the buzz, educate new members of the community and even provide technical support, etc.

What we see in the case of OSHW is a greater integration between a commercial entity and its market. Traditional commercial entities maintain a provider-consumer relationship with their markets: some "smart" individuals within the firm study what consumers might need, pass that to a team of engineers to make it, and put it for sale with a team of marketing wizards who will make almost anything look like the perfect fit. If the firm was right about the need, which is not always the case, customers pay for it and take it, and ask for service if needed. Service is provided by the commercial entity in exchange of customer loyalty. In this approach, the consumer is educated about what he needs and wants, after the "smart guys" have made the market study, decided on the general need, and offered a one-fit-all solution. This is obviously the extreme case, or what was widely practiced 20-15 years ago.  Today, traditional corporations build communities around their brands, and they try to absorb more feedback from their consumers. In the case of OSHW, individual consumers drive design and development.

This integration between the commercial entity and the market in the prevalent OSHW models is made possible by the internet technology. But as we saw above, there is still a clear distinction between the commercial entity and the community. For example, a community member who proposes a new design that becomes commercially successful is not rewarded with a fair share of the profits made by the commercial entity. I call this the "candy economy", meaning that the members of the community around a OSHW company stick with it and contribute mostly for intrinsic motivations, and a small present (a candy) or a token of recognition from time to time.

Is this division between the commercial entity and the community necessary? Or is it an impediment for a better arrangement?

The open value network model abolishes the distinction between 

the commercial entity and the community!

The open value network is a model for commons-based peer production. See SENSORICA as an example.

read SENSORICA business model 2.0

The diagram above depicts the structure of an open value network. The physical and the virtual infrastructure, as well as the tools and the equipment used in R&D and in production are part of a pool of shareables, legally owned by a Custodian, which is bound by a promise to act in the interest of the community, obeying a set of predefined rules set by the community. All the information and the knowledge generated by the open value network become part of the commons (there is no intellectual property). Affiliates (agents) rely on their know how to create value (products), using these resources. This value (products) is exchanged on the market for some form of revenue. The revenue is redistributed among all affiliates in proportion to their contributions, using a contribution accounting system. The barrier to participation to production processes is very low. In that sense, the value network is open. Production is so widely defined that it encompasses activities usually performed by members of the commercial entity and the community, in the prevalent OSHW model cited above. Therefore, the two structures, the community and the commercial entity are merged together at the level of production.

The open value network model distinguishes between different types of agents, based on their degree of involvement/participation. Thus, we can distinguish between active affiliates (those who take part in value creation) and unaffiliated observers (those who know what's going on in the value network). If we go back to the prevalent OSHW model cited above, we can say that the owners and the employees of the commercial entity, as well as the community members who provide feedback and new design ideas, or who actively propagate information about products are ALL active affiliates.

We also need to note that active affiliates are those individuals who participate in value creation AND who decide to log their contributions within the contribution accounting system. Participation in the contribution accounting system is NOT mandatory. Someone can elect to contribute to the open value network without expecting something in return. Thus, the open value network integrates a gift economy with a market-oriented economy.

That is all fine on the production side, but what about the distribution side, or the market side?
All the transactional logistics (for the exchanges between the producing network and its market) and the legal aspects associated with it are moved into what sencoricans call the "Exchange firm", which can be embodied as a non-profit, with the sole purpose of serving the open value network.

So why is the open value network a menace to current OSHW business models? Because by abolishing the distinction between the commercial entity and the community, value networks like SENSORICA threaten to drain these communities associated with OSHW-based firms of their talent!   

More on the open value network model

The open value network model departs from capitalism for 3 main reasons:

• No division between owners and workers, between those who own the means of production and those who provide work. The commons takes care of that. 
• No clearly defined frontier between the system of design-production-distribution and the market, the system rewards every contributor to production in proportion to his/her contribution. The contribution accounting system takes care of that. 
• Re-appropriation of labor. Active affiliates who are involved in production are not exchanging their labor for wages, they are, in some sense, accumulating equity, which gives them rights to the future revenue generated market transactions. Thus the individual is always the owner of his work. 

The contribution accounting system allows open value networks to go beyond the gift economy AND beyond the candy economy.

By t!b!

By AllOfUs

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The role of power relations in a p2p economy

The #occupy movement, which is a surface manifestation of a deeper Multitude movement, is in fact a refutation of power. Not only of the "power in place", i.e. big banks, governments, etc. but of what we call "instituted power", the kind of power your boss has over you. The consensus decision making process, a form of direct democracy that has been adopted by the #occupy movement, is the most obvious affirmation of this refutation of instituted power relations, which until now has been seen as a necessary structuring mechanisms of society. 

Where is this coming from? Was it there before? Is this pure Utopia? Or is there something fundamental happening, which makes instituted power relations lose their importance?  

We often hear that instituted power relations are tolerated by people because they are believed to be essential to organize us into efficient and effective groups, to achieve complex goals. Some say that without instituted power relations society would simply brake down, collapse. Go tell that to an anarchist... 

Value Networks, about commercializing their products

We take the example of a specific value network, SENSORICA.

The problem

One of SENSORICA’s main reason for existence is to provide for its members/affiliates the means of subsistence and well-being. This is to say that the surplus value that is created by the network must be exchanged on the market against other values, which are to be redistributed to participants based on their relative contribution. This redistribution is done according to the value accounting system, to which all members must adhere. The goal here is to establish a channel of distribution for SENSORICA’s products. The problem is that there are laws and regulations which makes it difficult for a non-legal entity like SENSORICA to sell certain products. Someone must take the blame if those products don't respect established standards, and our society doesn't know how to interface with things like SENSORICA.

Solution 

In the current situation, we need to create legally recognizable forms to channel products through them. This is actually the role Tactus Scientific Inc. plays for the Mosquito Scientific Instrument System, designed for the scientific instrument market segment.

New economy - how things will be designed, produced and distributed in the future

Here's another example of the newly emerging pattern of design, production and distribution.

We are glad to see that our vision of the new economy is finally materializing. In 2008 we proposed the Discovery Network concept (see the post describing the initial motivation behind it). In 2010 we launched our first pilot project for the new economy a commons-based peer production system the Matchmaking Device System. It failed...  : (    but we learned a lot.

In 2011 we launched the second pilot project SENSORICA, which evolved into an open, decentralized and self-organizing value network.  SENSORICA is increasing in value and potential since its creation. 

Also in 2011, the know how developed within  SENSORICA spilled over to glocal food systems. In Ohio, USA local food systems are now morphing into value networks, see Greener Acres.

Furthermore, early this year we initiated another project in Montreal, through the #occupy movement, to implement value networks in clothing design and manufacturing. This is the #occupy Fashion project.

In the following weeks we will publish a few videos and documents detailing how value networks form, self-organize, and operate. This information will be put into context based on our new understanding of the new economy.

By t!b!