What is a DAO?
A DAO or Decentralized Autonomous Organization refers to a revolutionary way of organizing and operating organizations, making use of smart contracts and blockchain technology to provide transparency, immutability, autonomy and security to them.
DAO acronyms come from the English Decentralized Autonomous Organization , which means Decentralized Autonomous Organization . This refers to a type of organization that is controlled entirely by computational algorithms. These algorithms are known as smart contracts and they determine the rules of how the parties involved in the DAO must cooperate.
DAOs are not tied to any particular regulation or law due to the decentralized nature where the smart contract is executed and which is coordinated by the organization, the Blockchain development services .
In the same way, these smart contracts can be as simple or complex as it has been decided to program. But they will be transparent and immutable when they are published on the blockchain. This will allow everyone to review its operation and the rules that have been programmed inside, being sure that they cannot be modified in the future.
Being pieces of computer code, that is, a purely digital language, they open the door to a new level of cooperation, being able to manage decision-making between humans, machines and other smart contracts (which can be, in turn, managed by other humans, machines and smart contracts).
That is why DAOs represent a powerful technological innovation. One that seeks to redefine the way different parties cooperate. This is thanks to the fact that they allow the creation of autonomous, self-managed, transparent and more efficient organizations.
How does a DAO work?
DAOs depend on a series of mechanisms that guarantee their operation at all times. The first of these mechanisms is related to the ability to program actions and make them run according to certain parameters . With this, the DAO gains the ability to execute actions autonomously. Seen in a simpler way, this programming would become the set of rules that governs the DAO and the most common way of programming such actions is through smart contracts.
The second mechanism is a consensus protocol . Its function is to ensure that the decisions made within the DAO are made by the consensus of its parties. No factor external to the network and you want to participate directly in it can alter or make decisions.
Next, DAOs have a third mechanism that depends on the issuance of a token or medium of exchange . The purpose of this mechanism is to guarantee a means that financially supports the DAO. In addition to allowing users to gain voting power and at the same time being a mechanism for exchange and economic reward.
Finally, they have a fourth mechanism whose purpose is to record everything that happens in the DAO . This task falls to the blockchain development services , where all the information is stored to be accessed publicly and guarantee its security. The union of these four elements is what allows the operation of a DAO at all times.
DAOs, some real examples
Now you will surely ask yourself, are there any DAOs in reality? The answer is yes. Certainly a DAO is not just any organization and the complexity to build them is titanic. However, that has not been an impediment for them to be a reality. At the beginning of the article we named some names like The DAO in Ethereum , Dash DAO Governance and DigixDAO . These are just a few real examples of fully functional DAOs.
The case of Dash DAO Governance is an example of the use of DAO for the evolution of a Cryptocurrency development company. This DAO is intended to allow Dash governance at all levels and those who have a masternode participate in it . In this way, the decisions within Dash are democratized and the financing of the project is managed. Meanwhile, DigixDAO is another DAO governance focused on controlling the growth and development of Digix and its entire ecosystem.
The most famous DAO, The DAO
Without a doubt one of the best known DAOs was The DAO project . This project created in 2016 by Simon Jentzsch and Christoph Jentzsch was launched with the goal of building the largest DAO ever known using the power of Ethereum. Not only is it best known for being the DAO with the most funding but for what would happen next.
The result of the efforts of its founders was a success and with The DAO they managed to reach the goal of $ 150 million USD in what would be the largest crowdfunding campaign ever known. But the dream was short-lived. Soon after, a serious vulnerability was discovered in the code that The DAO was holding and a hacker managed to seize $ 50 million USD .
The event was a catastrophe for The DAO and even led to Ethereum applying a hard fork that gave rise to Ethereum Classic . All this shows that although powerful, DAOs can also be a source of potential risks, especially due to their programming and the difficulty of solving such problems quickly in environments that have been designed to be immutable.
Advantages and disadvantages of DAOs
Like all types of technology, a DAO can offer its participants different advantages and disadvantages. Something especially true because they depend on the programming or regulations of the DAO. However, at this point we can generalize some points that are worth knowing.
- It allows you to create organizations without any kind of hierarchy. Everyone who is part of the organization can contribute ideas and vote for them, thereby decentralizing the organization.
- Its level of transparency is very high. This is because a DAO inherits from blockchain development services its ability to record all the actions performed and make said record public, as well as view the source code of its operation.
- Decentralization allows DAOs to offer services globally, which eliminates borders and democratizes access to services that would not otherwise be available to many people.
- They greatly facilitate the creation of organizations, since these only have to be programmed in a blockchain and from that moment, it begins to work. This saves money, time and paperwork, something necessary for the traditional registration of organizations or companies.
- Programming a DAO is not an easy task. Automating tasks and the ability to make decisions is very complex. The DAO case revealed that a single line error can lead to millions of euros in losses.
- There are problems for DAOs to be able to comply with regulations in many countries. This is largely due to the fact that blockchain technology and cryptocurrencies still do not have a clear regulation.
Only a few years after their creation DAOs are undoubtedly an incredible technological tool that could be part of any great future revolution that is to come. Surely this revolution ends up coming from people not conditioned by the current limitations of society, visionaries. Who knows, maybe that person is you.