Crowdfunding capacity for peer production

Last updated on July 23 2015
Your feedback will help me improve it. Thank you for your time. 
------------------------------------------------------------------------

They did it again!

In the spring of 2015, the SENSORICA network delivered another important proof of concept for commons-based peer production. We demonstrated that equipment for peer production can be endogenously crowdfunded.

Everyone today knows about crowdfunding. In case you are just returning from a trip to Mars, crowdfunding is a new way to raise funds which involves hundreds or even thousands of individuals, the crowd. If you need money for a venture, instead of going to the bank for a loan or getting venture capital you can now use websites like Goteo, Indiegogo, Kickstarter, etc. You present your project on one of these platforms and ask people from around the world to fund you. Crowdfunding is either a donation scheme, people help you to achieve something without expecting much in return for themselves, only a good feeling for having contributed to a good cause, or a pre-sale scheme, people give you money upfront for a service or a product that doesn't need to be finished before the crowdfunding, that you will deliver a few months later. There is also crowdfunding for equity, where people give you money in exchange of shares in your venture, but very few countries have permissive laws for it.

You can find a lot of stories about individuals or small groups who raised hundreds of thousands of dollars for their product ideas. This shows that crowdfunding democratizes innovation.

It didn't take long before companies caught up with this trend, realizing that they could not only finance the productization phase (transforming a prototype into a manufacturable product at a competitive price) but also get immediate and valuable feedback from the market (if people finance you before you even have a finished product that means that you have a market, and they might even tell you how to improve your product).

So, before we see what SENSORICA did different, let's review a few important features of crowdfunding in general.

Most crowdfunding is used as a pre-sale scheme, Kickstarter being the most popular platform. Goteo is more for open source projects, or for projects that have a social impact. Crowdfunding for equity seems to be adequate for financing infrastructure or capacity development, but it is still in its infancy. 

Almost all the crowdfunding mechanisms are dissociated from the ventures that are using them. They are centralized platforms owned by a classical organization that acts as a mediator between project initiators and their support crowd. 

The crowdfunding model is fueled by three types of actors: the project initiator who proposes the idea and/or project to be funded; individuals or groups who support the idea; and a moderating organization (the "platform") that brings the parties together to launch the idea.  [Wikipedia]

There are also a few examples of self-crowdfunding, where organizations run their campaign on their own platform. This practice is problematic though, because people see in it a conflict of interest. When a third-party that specializes in crowdfunding is used, people trust that the same rules will be applied to everyone and that the data displayed during the process reflects reality.

But things are changing very fast now. Within a year or so, crowdfunding will be implemented on p2p infrastructures based on block chain technology. This means that instead of doing crowdfunding on centralized platforms (the website lives on a proprietary server or cloud, Kickstarter for example) the process will become entirely p2p (the information will live in a bunch of interconnected machines, individually owned by everyone who uses the system). Simply put, the block chain technology (and who knows what will follow next) decentralizes funding even further. If traditional crowdfunding allows people to fund each other using a centralized proprietary platform, this new technology eliminates the need for a proprietary platform, the company in the middle, and  puts the same people in charge of the process. See more here.

Born in 2003, crowdfunding is already making a leap forward, leaving platforms like Kickstarter wondering about their own survival. The new p2p (or real) crowdfunding, based on block chain technology, can give much more flexibility to projects or ventures. The problem is that its time has not come yet. It is technologically possible, but the world around it hasn't advanced far enough for it to have a proper ground for implementation. This is where SENSORICA and its proof of concept comes in.  

SENSORICA is not a typical organization. It is an open value network. It is an open network that does peer production. It is a cluster of open enterprises. It is, in my opinion, the most audacious attempt to implement commons-based peer production of hardware, started in February 2011, one year and 3 months after Satoshi Nakamoto published his paper "Bitcoin: A Peer-to-Peer Electronic Cash System". It is the furthest humanity has gone into hard core peer production, building peer-run physical labs, peer governance and normative systems, methodologies for open product development, as well as legal structures compatible with all that. SENSORICA is the proper environment for p2p (or real) crowdfunding.  

Recent technologies like Ethereum, which also builds on the block chain technology, have made possible new types of economic entities, the so-called DACs, for Distributed Autonomous Organizations. The first implementations of DACs are quite simple, service based, see for example Peertracks. But this technology will very soon mature to fulfill the needs of p2p hardware innovation and production, which is very complex. This will most probably become the infrastructure on which open value networks like SENSORICA will be built in the not so far future.

All that to say that in parallel with the continuous development of crowdfunding there is also a continuous development of organizations, following the same philosophy, based on the same logic, enabled by the same technology. The two movements are about to merge into a coherent economic system, operating on new principles. We are already passed half way into the transition and we can already see what's on the other side.

So what did SENSORICA demonstrated? Sorry for holding it, I am trying to save you the best for the end  : )

SENSORICA used its network resource planning and value accounting system (NRP-VAS), in a context of peer production, to endogenously crowdfund a piece of equipment for the first time in its history. In other words, this is the first time a p2p network that is focused on hardware innovation and production has used a crowdfunding mechanism part of its own infrastructure, not as a service from an external platform, centralized or not.

We used the NRP-VAS to co-finance a $4,000 3D printer. 11 SENSORICA affiliates have contributed to this purchase. The example might seem insignificant for the untrained eye, but there is a lot more behind it.

First, there is the issue of trust. Most of these participant affiliates have never seen each other. Two of them live in the US, the rest live in Canada. Some of them are so far away that they will not even be able to use the 3D printer. We passed the trust hurdle. Participation was a bit slow in the beginning, but after we reached a critical mass it got easier. This is trust in a system, trust generated by processes, trust generated through openness and transparency, not so much trust in each other. This is what makes a system scalable and reproducible.

Second, there is the complexity that comes with co-purchasing. Who owns it? What's the agreement between the co-owners? Who can use it and under what conditions? Who is going to pay for maintenance? How are we going to deal with community use, and commercial use, and other types of uses? It is not simple, but this is what technology is good for, reducing complexity or hiding it behind user interfaces.

We created a co-owner agreement and we implemented new functionality within our NRP-VAS to handle the printer's use logging and to perform calculations to account for the material used in the printing process, usage time, technical assistance, etc. For example, is someone makes commercial use of the 3D printer the cost is split into:

• cost of the material used, 
• some % will go into a maintenance budget account for the 3D printer, 
• some % will go to a general infrastructure maintenance and development account,
• some % will go to pay back the co-owners (the agreement stipulates that once they are paid back plus 20% to cover their risk, the 3D printer becomes part of the pool of shareables), 
• some money will go to pay a technician, if needed.    

All that complexity is absorbed by the technology that we are developing.

NOTE: SENSORICA's NRP-VAS is not decentralized, it is not using block chain technology, because this new p2p infrastructure is not ready yet to handle all the complexity that the open value network is dealing with. This will probably come in two years from now. Moreover, when SENSORICA was created the block chain technology was still in its embryonic state. Therefore, it is probably difficult for the untrained eye to understand how this new SENSORICA proof of concept fits with new pure p2p processes. Think of SENSORICA as p2p at the socio-economic level, but not entirely at the infrastructure level. This is still a work in progress.

This crowdfunding endogenous to an open value network was implemented using the Custodian's financial tools, a Paypal account (open the webpage where the contributions where gathered). See definition of a Custodian. All the contributions were recorded into a virtual account on SENSORICA's NRP-VAS, specifically opened for the purchase of the 3D printer. Once the printer was purchased this account balance went back to 0$.

The lesson here is that an open value network is able to not only crowdsource and crowdfund innovation and production, but also infrastructure development. The tools used by SENSORICA, a p2p organization at the socio-economic level, are not entirely p2p, but we are building understanding and valuable experience, and we are anxiously waiting for the block chain technology to mature.


By Tiberius Brastaviceanu

By AllOfUs

Governance and legal structure for commons-based peer production

Governance and legal structures for commons-based peer production (CBPP) are evolving very rapidly, but we are still far from having something that is fully compatible with CBPP practices, to make a coherent CBPP system.

CBPP communities that create exchange value (products and services to be distributed/exchanged on the market) are usually hybrid or mixed structures. The most obvious examples are ecosystems like Arduino, which are comprised of a classical structure (the Arduino company) in the middle of an open source hardware (OSHW) community. The Arduino company incorporates functions for production and distribution, but it also plays an important role of facilitation and coordination of the open OSWH network around it. The 3D robotics (the company) and DIY Drones (the community) form a similar ecosystem. See Open source hardware meets the p2p economy blog post.

Other CBPP communities are organized as cooperatives. This choice is justified by the more democratic nature of these types of organizations. I expressed my opinions on this structure in the Are Coops Outdated in a Network Age article.

Why do we need a contribution accounting system?

First published on 3 January 2014 and last modified on 8 January 2018

......................................................................

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''.

......................................................................

With the advent of the Internet and the development of new digital technologies, the economy is following a trend of decentralization. The most innovative environments are open source communities and peer production is on the rise. The crowd 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 all the participants 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. This method for redistribution of benefits must be established at the beginning of the economic process, in a transparent way. It constitutes a contract among participants, and it allows them to estimate their rewards in relation with their efforts. We call this the contribution accounting system.

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

How to play the open game in the present and future economy

This is the fifth draft; it will evolve based on your feedback. First published on 6/19/12. Last modified on Jan 13, 2026. Come back later for more...  

--------------------------------------------------------------------------------------------

More and more solutions to our problems today come in the form of open artifacts, i.e open source software and hardware, created by online communities and networks. Traditionally, most of these communities have relied on voluntary participation or some type of gift economy, i.e. the developers do not expect a direct or immediate tangible reward for their contributions. These open artifacts have been regarded as marginal, mostly intended for amateurs and hobbyists. How can one expect serious things to come out of loose organizations that don't use the prescribed governance model and methodology, and don't have access to a large budget? At least this was the unadvised belief, until we realized that critical infrastructure, like the Internet, runs mostly on open source software, created and maintained by these unorthodox organizations. Ingenuity, the helicopter drone, part of the Perseverance mission to the planet Mars, operates on Linux, which is an open source operating system. Bitcoin, runs on open source software and is supported by an open group of people (miners), who can be practically anyone with a computer and an Internet connection. Since Bitcoin was launch in 2009, no one has hacked it, despite the astronomical reward, ranging in the tens of billions of dollars, if we only consider the abandoned accounts of Satoshi Nakamoto, the creator of the network. So some open artifacts developed by unorthodox organizations are pretty serious, highly secure, mission critical, or operating at global scale. There are also lots of crappy ones, as there are crappy products offered by serious companies.

What I call playing the open game is developing open artifacts (based on open source technologies) relying on unorthodox organizations and being able to make a living.

There are a few important components to the open game... 

 

First, there's the intellectual property regime. Open source means that no one can create a temporary economic monopoly on a particular solution, as it is the case with products based on patented technologies. If one cannot control the artifact how can one capture value or generate wealth? 

In the most simple terms, how can one make money developing open source technologies. My first reaction to this question is to point to the obvious: 

• IBM has invested billions of US dollars in Linux and other open source technologies. ref
• Google has gained mobile dominance by opening Android, the mobile operating system. 
• Tesla has engaged in a hybrid IP strategy, i.e. open source patented. 

The second order economic model 

It becomes possible to generate wealth while developing open source technologies, if the business model is not simplistic and/or linear. In most viable cases, whatever is open source is not the product, but by open sourcing some technology in the IP portfolio, these companies produce some effects within their ecosystem, which they can harvest or leverage for their core business. In the case of Google, opening Android increased its adoption rate, while propagating some core Google functionalities, thus putting Google services in billions of mobile devices, which then could be monetized using Google's core business model. We also see a second order kickback pattern with online services like Facebook, where free access is given to a digital service (search or connecting and interacting with people), while making money from selling users' generated data or attention. So we need to stop thinking about business as a simple and linear process, as simply transactional.

A similar example of second order economic model, extended to a whole community or ecosystem, is Tiki, an open source wiki CMS groupware? The wealth generation model is similar to Red Hat, the poster child, based on support, training, and consulting services around the core open artifact, which is offered for free. 

 

At this point, I find that is it important to raise to your awareness the fact that the wealth generation model is not the same when the technology is software or hardware. It is beyond the scope of this post to dive deeper into this distinction, but if you're interested, we can discuss in the comments.

Note that I have deliberately use the term open artifact instead of product and the expression wealth generation or economic model instead of business model, to avoid cognitive interference. When we say product people think about commodity, something that you can buy/sell on the market. But you cannot sell the Linux operating system (an open artifact), which defies the law of supply and demand, as it is an abundant, non-rivalrous resource, since its reproduction (copy/paste) and distribution (download) costs are negligible. The case of open source hardware is not the same, but similar. The costs for reproduction and distribution are high for material artifacts, but since everyone has access to the design, anyone can fabricated it locally, (see more on distributed fabrication and DIY - Do-It-yourself), making use of digital fabrication techniques (3D printing, CNC, etc.).

Beyond money

So what about the expression wealth generation? 

When we say wealth most people think about money. When engaging in open source development, people are seeking other forms of wealth, for what they are in themselves (or for a later conversion into money, monetization). For example, someone may want to contribute to an open source project to learn new skills, to develop new relations with people that have specific skills or that share specific values, or to build reputation. In some cases, when money is introduced as a motivation factor in open projects the social cohesion breaks down.

 

So playing the open game requires a renunciation of mechanisms of control of intellectual property, which entails the refusal to create a temporary monopoly and thus the adoption of more sophisticated economic models or the adoption of different forms of wealth or new forms of value. But the open games deploys within a very different organizational environment, to which we already alluded above, as most of the time the open artifact emerges from open organizations or networks. 

p2p as a new organization paradigm 

Recently, we have witnessed the emergence of new economic models that brake away from the gift economy, directly rewarding those who contribute (with time, financial capital, social capital, ...) to open projects. The open artifact is gradually becoming sustainable. The first step in this direction can be illustrated by Open Source Ecology, which designs open hardware for farming, construction and manufacturing. The designs are  entirely open and free, but the Open Source Ecology community is not interested in commodification, i.e. market exchanges, their designs made with DIY (Do It Yourself) in mind, destined to be produced by the user, or very close to the point of use. In the case of Open Source Ecology their model for subsistence is based on revenues in fiat currency, from donations or educational services.

Open crowdsourcing is another model in which designers, part of an (open) community, are rewarded to complete a project. This scheme doesn't only rely on donations or voluntary participation, since those who contribute are rewarded in exchange with some symbolic gifts (tokens of recognition), reputation tokens, job opportunities, etc. Arduino is an example of such model, a hybrid between the open (value) network OVN and a traditional business, which relies on a vast community of enthusiasts to propose new designs, find and eliminate bugs, engage in promotion, etc. 

There are also closed and non-transparent crowdsourcing initiatives, such as prizes, in which only the best contributors are rewarded. Contributors are often placed in competition against each other. The resultant designs or artifacts are closed and remain under the control of the initiator. We are definitely against this new form of human exploitation, as you can see in this post. 

Sensorica is based on a more radical model, referred to as an open value network (OVN), which implements commons-based peer design production. It is in fact a mix between a gift economy and a transaction-based, or market economy. Sensorica can produces open artifacts that can either be exchange on the market or disseminated as DIY open designs. Various forms of rewards (including revenue from market exchanges or donations) are redistributed to all contributors in proportion to their contributions, based on a Benefit Redistribution Algorithm, which is at the heart of the Network Resource Planning and Contribution Accounting system (NRP-CAS).