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Comment by jacquesm | Hacker News Reader

Did they get the stock?

IANAL, but I assume a competently-written contract would have explicitly listed the cash 500 Startups was supposed to invest as consideration for its equity share, so if the money never shows up the contract is void.

Incidentally, this is one of the advantages of a human-run judicial system over the wild west of "code is law"-style equity on a public blockchain. If it comes down to it and there's a fight over how much equity is owed to 500 by one of the startups in this group, it can be resolved by a judge with access to all the context after hearing the best arguments available to both sides.

EDIT: The reason why this is a good example is that 500 Startups provides more than a straight cash-for-equity trade. They also provide mentoring through their accelerator program, introductions to later-stage investors, etc. Those considerations (as well as HOW late the payment is eventually made, whether that can reasonably be considered hardship for the company, etc.) can all be weighed by an impartial judge in resolving a disagreement.

I'm not defending "code-is-law" as a valid solution to this, but wouldn't a smart contract require the cash (crypto) to be sent in before allocating equity? The issue in this situation is that no money was ever wired. In a smart contract, that means the "invest" function would not be executed and the "equity tokens" not assigned.

Yes, it would.

In the real world requiring "payment up front" for all contracts isn't really feasible. A lot of low-margin businesses live or die on the cash flow terms of their contracts.

This isn't a particularly good example, because on a blockchain, both the currency received and the equity percentage of ownership of the company are numbers that go onto the blockchain and can be cryptographically enforced. A blockchain simply wouldn't let you write a contract that says "I give $X in exchange for Y% equity in this entity" unless it could prove that you have ownership of $X.

The real advantages of a human judicial system come when there's a judgment call involved in the contract. For example, "I own X% of 500 startups and have control over future investment decisions, unless it can be shown that I have violated the laws of the United States, some of which happen to be about sexual harassment." What constitutes sexual harassment? Damned if a blockchain knows. It's hard enough for humans to come to agreement on that, let alone computers.

> A blockchain simply wouldn't let you write a contract that says "I give $X in exchange for Y% equity in this entity" unless it could prove that you have ownership of $X.

A blockchain absolutely would let you write a contract that does that, and it could be on purpose or by accident. If you want to be sure your contract doesn't accidentally or maliciously do that, you have to audit it ahead of time because once it's executed, you're screwed. There's no judge who can come in after the fact and nullify some of your contract provisions based on fraud or mistakes or conflict with existing laws or other totally reasonable considerations that aren't explicitly coded into the contract ahead of time.

But what if the contract is "I will give you $X in three months time in exchange for Y% equity in this entity"? It's not unusual to enter a contract that obliges you to pay money you do not yet have at some future date when you do expect to have it.

If your contract system doesn't allow that then it isn't a very useful contract system.

I doubt because 500s didn't fulfill their part of the contract.

I suspect that the real ownership of the stock doesn't need to be really solved until a stock operation that need signature happens.

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