Top 10 words to know about DAO (Decentralized Autonomous Organization)
An approachable guide on the most frequently used terms
A Decentralised Autonomous Organisation or DAO is an emerging model that takes traditional governance structures with the community and combines them with blockchain technology to deliver more decentralized, autonomous, inclusive, open, and collaborative organizations while maintaining or even refining the required level of control.
Let’s get more technical:
Automation, blockchain, cryptocurrency, transparency, trustless, and ease of launching new tokens lead to the emergence of whole decentralized ecosystems, called DAOs (Decentralised Autonomous Organisations). These organizations use smart contracts, software running on blockchains, for their governance, and tokens for funding their operations. Members of DAO are bound together by a common goal and peer-to-peer network incentives tied to the consensus rules, giving emergence of crypto-economics. These rules are entirely transparent and written in the open-source software that governs the organization. Since DAOs operate without borders, they might be subject to different legal jurisdictions.
The bold terms in the above paragraph are explained below:
Consensus Protocol
The consensus protocol is a clever method through which the order of transactions is recorded, stored, and secured on the entire network. When an update happens to a Blockchain, it incorporates two processes: adding and confirming transactions. This is where consensus algorithms step in, performing their supporting operation to ensure the safety and reliability of the Blockchain network.
Various blockchain implementations have different consensus mechanisms, but they can be broadly classified into two categories:
→ Proof of Work (PoW)
→ Proof of Stake (PoS)
Blockchain
Blockchain is a distributed ledger system of recording information that makes it difficult to change, hack, or cheat. Simply put, blocks contain data, and every block is linked to the preceding one. If someone tries to change information on a block, they also have to change all subsequent data, which is almost impossible. Somewhat like a database, a blockchain stores information electronically in digital format.
Blockchain can store Smart contracts that run when predetermined conditions are met.
Smart Contracts
Imagine them as automated vending machines in software. They make it easier to transact using the blockchain because they trigger and act on agreements like contracts. In theory, this makes smart contracts less risky than traditional contracts. Why do we even need smart contracts? Well, because the blockchains need them to function. Smart contracts are programs that live on the blockchain and make it possible for agreements to be carried out in an entirely “trustless” environment. A token represents a set of rules encoded in a smart contract.
Tokens
Many of us hear a lot about “tokens” in the blockchain space, and it’s confusing. As definitions go, tokens are digital assets defined by a project or smart contract built on a specific blockchain. It’s important to understand that tokens aren’t coins. They have their own set of terms and conditions. Tokenization has continued to facilitate the decentralization of digital platforms in practice.
Decentralization
The emerging dominance of cryptocurrencies, blockchain, and Web3 has guaranteed that the current internet, primarily controlled by tech giants such as Google, Facebook, Amazon, and Apple, can soon be obsolete. Designed to restore power to users, creators and developers alike, a revolution is made. The past decade has brought an ever-expanding ecosystem of social media platforms that have enabled users to create online personas and become their media outlets, connecting with any audience at scale. In essence, decentralization refers to operating on platforms where no single entity has control of the platform, i.e the opposite of what takes place now with Web2
Decentralization is becoming a bigger and bigger movement, with Web3 being the latest advancement in this phenomenon.
Open-source
Open source refers to something people can modify and share because its design is publicly accessible. Open source projects, products, or initiatives embrace and celebrate principles of open exchange, collaborative participation, rapid prototyping, transparency, meritocracy, and community-oriented development.
Blockchain technology allows an open, trustless, and democratic organizational structure, where software engineers can contribute toward open source and community-owned software products and receive compensation for their contributions.
Trustlessness
Unlike traditional organizations, the DAO has a radically decentralized, “trustless” governance structure that operates without any central executive decision-makers. This is done using smart contracts.
The concept of trustlessness is a core element of blockchain, crypto payments, and smart contracts. “Trustless” means that you don’t have to trust a third party: a bank, a person, or an intermediary that could operate between you and your cryptocurrency transactions or holdings.
Traditional organizations
A traditional organization uses legal contracts to work with its employees, whereas a DAO uses decentralized smart contracts. The former is centralized. However, the latter is decentralized.
Both DAOs and traditional organizations need an initial founder, or group of founders, to light the first match. In the case of a conventional organization, this role might be filled by an entrepreneur who sees a gap in the market and sets out to fill it with a new product or service. Similarly, a DAO might be spun up by a small group looking to bring value to a specific community through a new product, service, or protocol.
This is essentially where the similarities end.
Cryptocurrency
A cryptocurrency is an encrypted data string that denotes a unit of currency. It is monitored and organized by a peer-to-peer network called a blockchain, which also serves as a secure ledger of transactions, e.g., buying, selling, and transferring. Their name is derived from the strong cryptography they use to ensure the reliability and resilience of accounts.
One of the major features of digital crypto-currencies is that they are decentralized. This means they are not controlled by a single institution like a government or central bank but instead are divided among a variety of computers, networks, and nodes. In many cases, virtual currencies make use of this decentralized status to attain levels of privacy and security that are typically unavailable to standard currencies and their transactions.
Inspired by the decentralization of cryptocurrencies, a group of developers came up with the idea for a decentralized autonomous organization, or DAO, in 2016.
The difference between cryptocurrency and tokens is that cryptocurrency has its blockchain, which provides on-chain security. Tokens must rely on blockchain security on the top of which it exists.
DAO
Automation, transparency, and ease of launching new tokens lead to the emergence of whole decentralized ecosystems, called DAOs (Decentralised Autonomous Organisations). These organizations use smart contracts for their governance and tokens for funding their operations.
They can minimize existing principal-agent dilemmas of organizations and subsequent moral hazards. Depending on the governance rules, there are different levels of decentralization. DAOs involve people interacting with each other according to a self-enforcing open-source protocol. It is the exchange of values in a trustless environment and an effective way to work and explore with like-minded folks around the globe.
ArchiDAO is a DAO, the first decentralized web3 community-led Architectural design, education, exploration, and discussing platform for physical-digital space solutions and experiences that aim to implement a web3 approach into the Architecture, Engineering, and Construction (AEC) industry to make it more productive, integrated, and resilient.
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