Key Things to Know About Decentralized Autonomous Organization (DAO)
A decentralized autonomous organization (DAO) is an organization or business whose decisions are made electronically through a written computer code or via the vote of its members. Basically, it is a system of hard-coded rules that would define all the actions that take place in the organization.
What is a Decentralized Autonomous Organization (DAO)?
To understand this, let us understand digital currencies which are decentralized. This means that they are not controlled by a single government institution or bank. Rather, the control is divided among a variety of computers, nodes, and networks. With this, they also gain a lot of privacy and security that normal currencies and their transactions do not get. Inspired by this, in 2016, a group of developers got the idea to create a decentralized autonomous organization.
A DAO is an organization that was created to be decentralized and automated. It does not have a typical management structure or board of directors and it is based on an open-source code. So that it stays completely decentralized, the DAO was unaffiliated with any specific state or country. The reason why such an organization was created was so that manipulation of investor funds and human error can be eliminated. This is done by placing the decision-making power in the hands of an automated system and a crowdsourced process.
How does a Decentralized Autonomous Organization work?
In a decentralized autonomous organization, every vote or action that takes place is represented in the form of a transaction in the blockchain. And the members who take action or place votes are represented by their address. These addresses can be owned by anyone including an IOT device, a robot, a human or even another DAO. And this is what makes it an automated system. Also, each member gets a token that acts as the shares of the DAO. These tokens can also be used to vote in the DAO to make a specific decision.
The token is just another kind of contract that is becoming a part of the blockchain. And the more tokens an address has, the more control that address has over the DAO. Every member has the right to submit a proposal that would help them make certain decisions. These decisions include:
- Hire a lawyer
- Hire a vendor to get his/her service
- Fire the CEO
- Change the CEO
- Pay certain USD/ethers to someone as a bonus or salary
- Issue the share to an address since that address is adding more value
In the decentralized autonomous organization, since it is a democracy that runs on the blockchain, the voting power can be optionally entrusted to someone the member trusts. It is just the same as voting through a proxy in a real organization. The DAO can also raise funds through crowdsourcing by issuing tokens to anyone who is paying the money. All these transactions take place in real-time unlike the time taken in a real organization which is more than 60 days.
Decentralized Autonomous Organization Examples
With the DAO, we can now have companies that do not have a specific hierarchy or a CEO. This makes the structure one of the best ones to have in any kind of organization. In fact, if regulatory structures allow, then blockchain data could replace a lot of the public records such as missing persons, sex offenders, titles, mortgages, deeds, marriage certificates, and birth certificate records.
With this, healthcare clinics can also function autonomously, software development companies can employ thousands of independent programmers, cab companies can control a fleet of driverless cabs, and so on. This list can just go on when a DAO model is applied to any business. In fact, there are such companies in the real world as well. Some of the examples of the real world include Digix.global and the cryptocurrency Dash.
Dash is a popular digital currency and is an example of a decentralized autonomous organization due to the way it is governed and how its budgeting system is structured. And after some time, we would find many other additional DAOs in the field.