What is DAO?

DAO is a popular word in the blockchain industry. It is not impossible that even as a newbie in the blockchain industry, you might have come across the term ‘DAO’. As we delve into DAOS, two concepts are very important as necessary knowledge - decentralization and smart contracts.

What is Decentralization?

Decentralization is the process of yielding authority from a central entity to the general public. For example, financial decentralization is cryptocurrency’s mission—transferring the control of finance away from banks and financial institutions to the hand of the public.

What is a Smart Contract?

Smart contracts are simply programs stored on a blockchain, which run when predetermined conditions are met. Smart contracts are computer code built within the blockchain network that nodes execute, which updates the ledger.

What are DAOs?

DAO is the acronym for Decentralized Autonomous Organization. Although DAOs are traditional organization like Uber, Google, and Airbnb, the difference is that it is completely autonomous, has no human intervention, and has no boss.

DAO organizations are run by programming codes written by smart contracts. For example, imagine that a group of creators make an autonomous DAO-Airbnb as an alternative to the centralized Airbnb we all know. When these DAOs are released, creators set up a series of interconnected and automated smart contracts on an open blockchain like Ethereum.

A series of smart contracts will trigger invoices and collect payment from people who booked an apartment on DAO-Airbnb. The smart contracts will also be used to maintain the apartment according to the cost of the services needed. It involves technology and the Internet of things (IoT) and, once set up, runs autonomously.

Simpler systems are possible today. A vending machine that orders its product when inventory gets low and automatically pays for the order.

How DAOs work is down to the development team and the processes they decide to automate. It can be complex or simple, depending on the need.

It doesn’t mean humans are completely useless in the process. Like traditional companies, DAOs have stakeholders that vote on changes. Stakeholders can vote to influence decisions and directions. DAO stakeholders own a token or stake in the company, which gives them voting rights. Who holds the largest token can give the largest vote. Tokens can be released during the funding period before the

DAO is launched or at set intervals and set the rules that the smart contracts will run on. A perfectly structured DAO allows every investor to shape the organization. There is no hierarchical structure, which means every innovative idea can be put forward by anyone and considered by the entire organization.

DAOs, just like everything also connected to cryptocurrencies, are new and promise to be a revolutionary technology. It’s a brave new world of possibilities.

Benefits of DAO

They are Trustless.

The biggest benefit of a DAO is that you don’t need to entrust any CEO or manager with decision-making. The whole organization will continue regardless of whether a major developer stops working on the project or funding goes away.

DAOs can’t be shut down.

Major agencies like the FBI or CIA can force an organization in the USA to shut down. For example, the FBI or CIA can ask for the details of a shareholder in a company, and the company has no choice but to comply. The only way this can happen in DAO is to buy a token and submit a proposal for voting.

DAOs are Open-Source.

As an open-source project, anyone can contribute to DAOs. Open-source projects are usually much more reliable; other programmers can find bugs in the code and propose improving them.

Disadvantages of DAOs

Vulnerable to attack.

The DAO, one of the foremost DAOs, failed due to an attack by hackers. Twenty thousand founding investors had poured in $150 million and lost 50 million Ethereum to hackers.

No business secret

Since everything about DAO is open to the public, there is no business secret. Some traditional companies work on a project for years without public knowledge. However, with DAO, no project is shrouded in secrecy. And that’s the future!