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Things No One Told You About Decentralized Autonomous Organization (DAO)

Blockchains can facilitate various kinds of organizations that can operate autonomously without the requirement for coordination by central entities. This is where decentralized autonomous organization comes in. It is one of the exciting examples of the application of blockchain to governance. 

What Is a Decentralized Autonomous Organization? 

A Decentralized Autonomous Organization refers to an organization or business whose decisions are taken electronically with the help of a written computer code or with the aid of member voting. In other words, it refers to a system concerning some hard-coded rules that signify the actions an organization is likely to take. 

Also Read: En Route Decentralization of Internet Governance to Preserving Democracy

Decentralized Autonomous Organization Dates Back to 2016

One of the significant features of digital currencies highlights that they happen to be decentralized. It indicates that they do not happen to be managed by a particular institution such as the government or the central bank. Rather, they are segregated among numerous computers, nodes, and networks. In various cases, digital currencies use their decentralized status for attending levels of security and privacy that typically are unavailable to common currencies along with their transactions. 

Motivated by cryptocurrency decentralization, a crew of developers conceived the idea for the Decentralized Autonomous Organization in 2016. The Decentralized Autonomous Organization was a company developed by some of the developers for automating decisions and facilitating Crypto transactions. In the month of June 2016, because of attack vectors and programming errors, some hackers happened to attack the Decentralized Autonomous Organization, hence accessing 3.8 million Ether. Later, digital exchange currencies re-listed the Decentralized Autonomous Organization token during September 2016. 

DAOs Are Different From Traditional Organizations

In the case of traditional organizations, all members of the organization possess employment contracts that happen to regulate their communication with the company and with one another. Their obligations and rights happen to be regulated by legal contracts, hence enforced by a lawful system that remains subject to the underlying law of the nation they belong from. The legal contract is likely to define who can be sued in the court of law if something goes wrong or if someone does not abide by the rules. 

On the other hand, Decentralized Autonomous Organizations incorporate a group of people communicating with one another as per self-enforcing open-source protocols. Ensuring the safe network and carrying additional network tasks happens to be rewarded with native network tokens. Smart contracts and blockchains, in this case, decrease transactional costs of management. This ensures enhanced levels of transparency, thereby aligning the stakeholder interests by the rules attached to the native token. 

Members of Decentralized Autonomous Organizations do not happen to be bound together by a lawful entity, nor have they included themselves in any traditional legal contract. Rather, they happen to be steered by incentives attached to the network tokens along with entirely transparent rules and regulations that are inscribed into the piece of software which, in turn, remains applied by machine consensus. With no bilateral agreements and contracts, only one governing law prevails – the smart contract or protocol. It ultimately helps regulate the behavior of all the participants of the network. 

Management in DAO is Backed By an Operating System

In contrast to traditional organizations that happen to be structured in bureaucratic coordination, Decentralized Autonomous Organizations come with an operating system for institutions and people that do not understand or believe in each other. In this case, there can be people from various geographical areas, can speak their own native languages and can be subjected to numerous jurisdictions. 

Rather than lawful contracts maintaining the people relations, within the Bitcoin network, all contracts remain in the form of open-source code that happens to be self-enforced by measuring the consensus of all the actors of the network. Except for the code, Decentralized Autonomous Organizations do not possess a hierarchical structure. 

How Are DAOs Beneficial? 

The cutting-edge benefits of a Decentralized Autonomous Organization highlight that it intends to solve problems that plague modern-day organizations and corporations. Many of these problems are related to the management of the companies and a Decentralized Autonomous Organization can solve those by incorporating an autonomous structure. 

Also Read: A Brief Guide On Central Bank Digital Currencies

Decentralized Autonomous Organizations: Potential Issues

Apart from its advantages, Decentralized Autonomous Organizations also come with potential issues: 

  • Legal: A legal perspective of a Decentralized Autonomous Organization is not as straightforward and clear as conventional organizations. 
  • Social: Shareholder participation in centralized autonomous organizations can be a little problematic and tricky. 
  • Security: Codes of Decentralized Autonomous Organizations are challenging to repair if they are broken, thereby leaving loopholes and security bugs open for exploitation. 

Wrapping Up

A Decentralized Autonomous Organization decreases the requirement for human intervention, hence developing a more productive and efficient system. Overall, it can be said that Decentralized Autonomous Organizations can save operational costs hence decreasing risks linked with human behavior. 

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