6/1/2021
by Cathy Hackl of Forbes
Can you imagine a way of organizing with other people around the world, without knowing each other and establishing your own rules, and making your own decisions autonomously all encoded on a Blockchain? Well, DAOs are making this real.
Wikipedia defines DAO (Decentralized Autonomous Organization) as an organization represented by rules encoded as a transparent computer program, controlled by the organization members, and not influenced by a central government. As the rules are embedded into the code, no managers are needed, thus removing any bureaucracy or hierarchy hurdles.
Some of today’s internet users and the next generations are looking forward to starting social organizations, searching for an answer to: “How can we exchange values in a trusted environment? Blockchain enables automated trusted transactions and value exchanges, but even so, internet users around the world want to organize themselves in a “Safe and effective way to work with like-minded folks, around the globe”, according to Ethereum.
.Bitcoin is generally considered to be the first fully functional DAO, as it has programmed rules, functions autonomously, and is coordinated through a consensual protocol. Of course, not every DAO has been as successful as Bitcoin. In May 2016, German startup slock.it launched the creatively named “The DAO” in support of their decentralized version of Airbnb. At the time it was a great success with a crowdfunding campaign that raised over $150million worth of Ethereum.
Unfortunately, the code they used in the DAO had certain issues. So inevitably in June 2016 hackers managed to siphon off $50 million worth of Ethereum from the DAO before it was stopped. Even though the fault was in the slock.it code and not in the underlying technology, the hack did undermine some people’s trust in both the Ethereum coin and DAOs in general.
But today, due to the explosion of Decentralized Finance (Defi) during 2020, has led to a rise in renewed interest in DAOs. Now that you have a better idea of what DAOs are, it is important to understand more about their background and characteristics to appreciate the whole picture of what is turning traditional forms of organizing upside down.
What Makes DAOs Different?
A DAO’s financial transactions and rules are recorded on a blockchain. This eliminates the need to involve a third party in a financial transaction, simplifying those transactions through smart contracts. The firmness of a DAO is a smart contract. The smart contract represents the rules of the organization and holds the Organization’s storage. No one can edit the rules without people noticing, because DAOs are transparent and public. Up to today we are used to companies backed by legal status, a DAO may perfectly function without it as it can be structured as a general partnership.
In comparison to traditional companies, DAOs have a democratized organization. All the members of a DAO need to vote for any changes to be implemented, instead of implemented changes by a sole party (depending on the company’s structure). The funding of DAOs is mainly based on crowdfunding that issues tokens. The governance of DAOs is based on community, while traditional companies’ governance is mostly based on executives, Board of Directors, activist investors. etc. DAOs’ operations are fully transparent and global, meanwhile, traditional companies’ operations are private, only the organization know what is happening, and they are not always global.
Fully Functional DAOs
DAOs need the following elements for being fully functional: A set of rules to which will operate, a funding like tokens that the organization can spend to reward certain activities to their members, and also to provide voting rights for establishing the operation rules. Also, and most important, is a well and secure structure that allows every investor to configure the organization.
One potential problem with the voting system is that even if a security hole was spotted in its initial code, it can’t be corrected until the majority votes on it. While the voting process takes place, hackers can make use of a bug in the hole of the code.
How Are DAOs Being Used Today?
So far DAOs are being used for many purposes such as investment, charity, fundraising, borrowing, or buying NFTs, all without intermediaries. So, you can have a better idea, for example, a DAO can accept donations from anyone around the world and the members can decide how to spend donations.
Can you imagine being a co-owner of an Artist’s song by just using cryptocurrency on an internet-based organization? In May 2021,Jenny DAO acquired its first NFT, an original song of Steve Aoki and 3LAU. This DAO is a metaverse organization that provides fractional ownership of NFTs. Its members will be able to oversee the purchase of the NFTs and Unicly protocol’s smart contracts control the vault where these NFTs will be added.
The Metaverse Is Changing Business As We Know It
DAOs envision a collective organization owned and managed by its members with all of them having a voice. Many analysts and industry insiders affirm that this type of organization is coming to prominence, even potentially replacing some traditional companies. Businesses and brands need to stay abreast of current trends that could impact how they engage with consumers and how consumers interact with them. While DAOs are not ubiquitous yet, they do seem to be picking up steam with many creators.