What is Decentralized Autonomous Organization (DAO)?
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DAO is based on the idea that if Bitcoin can do business without a financial intermediary, maybe companies and other organizations can do business without hierarchical management in the future. In short, DAO aims to put what a company will do in the first place, namely, the main rules, on a template. This template could be to set aside some funding for a specific purpose or to determine the process of changing a rule.
DAOs operate similarly to companies and firms. It is based on smart contracts or pre-programmed schedules of what can happen in the system. These smart contracts can be programmed to implement various tasks: They can distribute funds after a specific date or when a certain percentage of voters approve of investing in a project. Some supporters say this system can work in any organization where any decision needs to be made, not just money. They see this system as a democracy guaranteed by a password. A democracy where shareholders can vote to add new rules, change rules, remove a member from the community.
Based on a pre-programmed code, Bitcoin was designed to be the first DAO that operates autonomously through a consensus protocol. As Ethereum has adopted smart contracts on its platforms, DAOs have further come into prominence. A smart contract is a basis of a fully operational DAO in which a set of rules are encoded. Then, the funding phase is activated following the establishment of the rules. The funding phase is a significant stage that enables DAO to either spend the tokens or use them to invest in certain activities. Also, users gain the ability to vote and influence how DAO works if they invest in DAO.
Once the funding phase is completed and a DAO is created, it turns into a fully autonomous and independent system that cannot be affected externally, even by its creators. Others have the chance to view a DAO’s code since it is an open-source algorithm. Another remarkable feature of DAOs relies upon transparency, immutability, and incorruptibility as all financial activities are recorded in the Blockchain. The Decision-making process in an operational DAO requires reaching a consensus. Those who put money in a DAO decide where and how to spend its funds; thereby, users can influence a DAO’s future. Moreover, the percentage needed to reach a consensus can be placed in its code so that the majority’s concept can vary depending on a DAO’s established rules and regulation.
DAO is an exciting and promising idea that has the potential to change our world in many ways. Despite concerns regarding the issue of a security hole in its code, a non-hierarchical, autonomous organization suggests a wide range of opportunities for creative and innovative ideas, decided collectively, to come true by anyone.