What is DAO?
The world is changing at a speed that is difficult for all of us to keep up with. As the Internet enters a new technological era by giving way to to the emergence of blockchain technology, many technological, economic and social innovations.
The blockchain is designed to facilitate trust in the process of exchanging value, making it an “Institutional Technology”, one which resembles with the true values of human interaction and thus automates the working of social institutions.
The traditional social institutions and organization are on the verge of disruption by a technology called the DAO – Decentralised Autonomous Organisations.
So what are DAOs? DAOs are one of the most advanced and amazing use cases of Smart Contract technology. It is essentially a company consisting of a network of people without any leader, CEO, the board of directors or management.
Let us take forward the analogy of the vending machine that we used to understand smart contracts, to further understand what DAOs are.
Imagine a vending machine that you frequently use, which not only gives you your desired item in return for money but also re-orders supplies, calls for maintenance when it malfunctions and gives the opportunity to its users to have a say in what kinds of item are to be ordered.
Such is the nature of a DAO. Now imagine the impact of this technology when it starts to disrupt traditional businesses. Healthcare clinics can sustain themselves, autonomous cars can work without the need to be managed and more importantly, we can have new types of projects which can enable the collaboration of members all around the world with an option to operate remotely. Popular examples of DAO include Digix Global and Dash.
Just like Bitcoin removed the middlemen bt reducing the dependence of people on third-parties, DAO aims to remove the role of the leadership team and allows everyone to decide the future course of action of a particular project.
How is a DAO created?
For the creation of a DAO, the first and the foremost step is to decide the rules and encode them into a smart contract. The smart contract is then uploaded on to the blockchain.
After the rules are laid down, DAOs, like any company, needs funds to operate. These funds are contributed by investors, in return for which they get a token. The token helps to fund the various activities for the implementation of the project and rewarding the people in the network. The token additionally decides the ability of an investor to influence the decisions about a project. Investors with a large holding have more voting power compared to others.
The main feature that DAOs have over the traditional organizations is transparency. Everything in a DAO is put on the blockchain and anyone can view it. All the rules, transactions, steps, projects and initiatives are available for review which can help potential investors to decide whether or not to make an investment. This also saves time for the members of a project by giving them a ready access to information which otherwise becomes difficult in any other form of organization.
The scope for misunderstandings and confusions is also removed as all the rules are pre-written and transparent.
In addition to this, all the members of a DAO have their finds at stake which pushes them to think for the betterment and growth of the organizations. Even putting forward a proposal requires members to spend some tokens which ensures that only meaningful proposals are raised and voted upon.
By giving equal opportunity to everyone, the DAO facilitates an effective functioning of the organization.
Though the DAO seems to be a revolutionary technology on the face of it, it has been facing some criticism. The DAO Attack threw light on one of the most dangerous aspects of this technologies. Do to some loopholes in the initial code, the hacker could exploit vulnerabilities to steal a lot of funds without being stopped by anyone. No action could be taken at that time as the hacker technically followed all the rules of the contract, which could not be changed.
Moreover, the idea of giving the power into the hands of the community has faced skepticism as people regard it as an unnecessary step.
Finally, there are no legal rules defined for such organizations to be formed in industries which have no connection with blockchain as such.