DAO attempts to solve a problem that most governments have tried to counter for ages, autonomous management. As the name suggests, DAO, is a blockchain technology that is completely revolutionizing organizations and distribution of power.
More importantly, through blockchain technology and decentralized autonomous organizations there’s no need of a central entity. In this article, therefore, we will discuss in depth how decentralized autonomous organization works and any other relevant information to the subject. Often the end product looks no different to the end user or customer, and is simply a decentralized application. Even some e-commerce stores, like www.bitgeeky.io are now being run by nodes and all decisions for the business are voted on in the blockchain by the token holders, node operators or those staking, but there is no centralized company or owner outside of the token holders.
How does Decentralized Autonomous Organization operate?
The name DAO is an acronym for decentralized autonomous organization. In full, I’m sure you already have a rough idea of what is happening in DAO. To be more specific, a DAO is a governance system based on the blockchain technology that uses decentralization as its core protocol. Most importantly, the system is governed by computer programs and codes.
Through smart contracts, the Decentralized Autonomous Organization can work with external information and carry out prompted commands. That’s all without any human intervention. Typically, the system is operated by the stakeholders through a kind of token mechanism.
Additionally, the transaction and rules are recorded and stored transparently on the blockchain. The rules are decided by stakeholders’ votes. The decisions are made through proposals. And when the proposals are voted by the majority of stakeholders, then it will be implemented.
The DAO network operates as a nation-state or a corporation where operations are decentralized. Some researchers equate Decentralized Autonomous Organization as the ultimate democracy implementation. Traditional organizations use a hierarchical structure with several layers of bureaucracy. On the other hand, Decentralized Autonomous Organization works without any hierarchy.
This system uses an economic mechanism to ensure the interests of the organization align with the interest of the members. The members are not tied by any form of contract. Instead, they are bound together by the objectives of a common goal and network incentives. The rules are wholly transparent and voted on upon using a consensus.
How to Become a Shareholder in DAO?
Investing in the Decentralized Autonomous Organization is relatively easy if you already know how to purchase and sell Bitcoins and Ethereum. All you have to do is purchase tokens, specifically DAO, which typically means you are buying shares of a company. And once the funding phase is complete then you can now make proposals to vote or make profit within the system.
Additionally, the amount of DAOs will be equivalent to the voting power you will have in the system. However, before you invest in Decentralized Autonomous Organization, you should understand what exactly you are getting into. That includes understanding how DAO operates and the other significant aspects of this blockchain technology.
What are the Attributes of Decentralized Autonomous Organizations?
Smart contracts define DAOs. However, for an organization to be good enough, it needs to have liquid funds. What’s more, the organization also needs to ensure there is good communication and facilitate good decision making. That said, some of the attributes that Decentralized Autonomous organizations should have include;
It Should be Autonomous
That means all parts of the organization on the blockchain should be implemented through smart contracts. On the same note, the organization should be open-source, meaning you can trust them. Even better, there should be no central authority; it can only function autonomously.
The DAO needs to have a valuable internal property that can be used to reward specific actions. When DAOs are created, funding takes place to avoid having a hierarchical management structure.
In DAOs, all processes need to be transparent for all members. That allows all the members to join and also work in the same cases. And since the blockchain captures everything that happens in a DAO, it can neither be changed nor manipulated.
On the Decentralized Autonomous Organizations, everyone votes on everything simultaneously. So, even if a single entity identifies a bug in the code, the changes can only be established after voting occurs. The blockchain executes the decision only after a consensus has been reached.
When developing DAOs, it’s essential to make decisions towards the future of the organization. Decisions are made democratically, meaning that a proposal will only be accepted if 51% agree to it. That means a lot of money and time will be saved and used to prevent spam on the network.
The actual voting occurs after the proposal is passed. Voting takes place demographically, and the proposal is approved if 51% agrees to it. And since DAOs run on the blockchain network, we can always trust the outcome of votes.
What are the Benefits of DAO?
The DAO concept is a fascinating one, mainly because it strives to solve the problems in the administration of our modern-day organizations. DAOs allow investors to shape their organization without any central hierarchical structure.
Decentralized Autonomous Organizations are always able to reduce costs to the minimum. That is through its fast and straightforward process of decision making. To that effect, DAOs don’t need employees to fulfil the administrative tasks as it operates autonomously.
With such less complexity in the organization, there is barely the need for an office, meaning you can work even when distributed worldwide and still reach your full potential.
Are there Shortcomings with DAOs?
All in all, even with so many advantages, DAOs still have some shortcomings. One of the significant disputed points here is always trust. The fact that people develop smart contracts, they are likely to have errors.
All we can do is trust the people making the smart contracts to do their job well. Otherwise, a single mistake in the code could potentially lead to the failure of the entire system.
While everything about Decentralized Autonomous Organization seems exciting, the concept is still very new and just revolutionary technology. All in all, DAOs could allow the organizations to break free from their reliance on traditional institutions. And instead of depending on a central entity to make the decisions for an organization, the governance rules are automated to yield the most beneficial outcome for the network.
Published @ April 12, 2021 7:26 pm