The year of the DAO - A beginner’s Guide.
An approachable guide on the most frequently asked questions
What’s the fuss about Decentralized Autonomous Organizations?
Wikipedia defines a DAO (Decentralized Autonomous Organization) as “an organization represented by rules encoded as a computer program that is transparent, controlled by the organization members.” DAOs are member-owned communities without a typical centralized leadership, with transparent governance and transaction records, rules, and governance maintained on a blockchain. The main goal behind DAOs is to automate all functions based on rules set by shareholders in intelligent contracts. In fully automated organizations, members can’t change these rules after implementation. They are stored on the blockchain, where any changes would require the whole community’s approval.
At its core, DAO consists of two parts:
Smart contracts - Define the rules and how efforts are executed (governance)
Token holders - Rotating governors & Members who vote for these rules in the form of proposals.
A DAO was first proposed by Christoph & Simon Jentzsch and posted on GitHub. Later in 2013, Vitalik Buterin published a white paper titled “DAOs, DACs, DAs, and More: An Incomplete Terminology Guide.” There are many variations of the basic DAO concept, but they all share one key feature: they exist mainly as digital entities. This organizational concept is not necessarily new, as its history can be traced back to traditional or analog organizations, such as guilds or cooperatives.
Joining a DAO means becoming a member of that organization, which may incur fees for joining, participating, and voting on proposals. While anyone can become a member of most DAOs, others may require that members pass specific criteria before joining.
For example, let's say you have a group of people who wish to join a DAO together. They might all be interested in funding eco-friendly initiatives or want to pool their money to loan out to other people at a profit.
The members would decide what kind of DAO they want and write down all the rules guiding its code. They would then deploy this code on the blockchain, where it will exist autonomously and without interference from anyone.
There is no typical management structure.
DAOs are a concept that is becoming more widely discussed in the world of cryptocurrency, especially in the Ethereum community. For the most part, it’s a simple idea: a decentralized and automated organization.
A decentralized autonomous organization (DAO) is an organization that was designed to be automated and decentralized. It acts as a form of the community fund, based on open-source code and without a typical management structure or board of directors. A DAO can be viewed as a democratic entity where governance is distributed throughout network participants who buy into the service by putting down tokens representing ownership.
DAOs are a collective effort.
The idea behind DAOs is that they are created through a collective effort, with members using their resources to bring the concept to life. There are no managers or individual owners in DAOs; instead, they rely on the community members to collaborate on creating and running the DAO.
The main reason why people have created decentralized organizations is to avoid having centralized leadership. A centralized board of directors can result in power struggles and conflicts, affecting the company's performance in the long run. These organizations aim for collective governance of resources with maximum transparency so that every member can contribute equally and effectively towards achieving the end goal. Blockchain technology provides a transparent ledger for transactions and a tokenization model for value exchange.
DAOs are mission-based
A DAO comprises people who have a common goal and mission. The group uses smart contracts to govern their actions, contribute funds, and make decisions. Through smart contracts, the DAO can operate in a decentralized manner and doesn't need to rely on the identity of its members to function. DAOs use “tokens” as their primary unit of account. These tokens can represent value in transactions or voting rights in proposals submitted to the organization by members.
DAO governance is based on an internal currency, in tokens, that serves as exchange and voting power. All members must purchase these tokens (or receive them through another mechanism) to operate within the system.
DAOs focus on trustless transactions.
While there are limitations to the trustless model, it’s a big step toward making blockchain technology more useful. It creates a new model that allows blockchain-based organizations to exist – and thrive – outside a centralized system.
Some of the benefits of trustless transactions are:
They are Fully-Transparent and ledger-verifiable
They reduce the need for trust between members (or by intermediate/third parties)
Trust is distributed to the blockchain (where the ledger servers as the consensus mechanism)
The biggest strength of DAOs is their ability to reduce the need for trust between members. They can theoretically operate in environments where confidence is lacking and thus thrive in areas where the presence of trusted officials (government, banks, etc.) is limited or nonexistent. This characteristic places them in a favorable environment for use in developing countries where strong centralized corporate, political, or religious leadership is often lacking or in prime markets where innovation is lacking given economies or cultures heavy in bureaucracy.
Closing Thoughts
The DAOs are an exciting concept. It encompasses various models, so it’s not surprising that people have trouble wrapping their heads around them. These organizations can be helpful for multiple applications and services, and they’re undoubtedly one of the exciting new ways to get started with crypto investing.
If you're looking for a way to make money by working independently and collaborating with others, you may find a DAO suitable. DAOS can be started quickly, and even non-coders are welcome to participate.
A decentralized autonomous organization may be possible in searching for innovative ways to manage a company. We will learn what DAOs can do and how they can be developed as progressive business models in the next few years. These organizations will be able to make better decisions because they are decentralized. They will create an incentive structure to make money beneficial to stakeholders.