Decentralized autonomous organizations (DAO) are considered as a revolution in the organizational structure. Due to the fact they are based on the blockchain, they differ from traditional organizations in many ways. For example, unlike traditional organizations which are usually controlled by a single entity or central decision-makers, decentralized autonomous organizations are governed by a set of rules that are identified by a community, group of members, who work together towards a common goal through the smart contract. In this article, the following are explained:
- What are Decentralized Autonomous Organizations?
- How are DAOs different from traditional organizations?
- Why are DAOs important?
What are Decentralized Autonomous Organizations?
A Decentralized autonomous organization is usually described as an open-source blockchain-based system that removes intermediaries, which is governed by a set of self-verifying rules-smart contracts. In fact, it is leaderless and autonomous. Instead of employing a traditional organizational structure for coordinating corporate activities, smart contracts are employed to organize the efforts at DAOs, thereby helping users move towards a common interest.
Generally, smart contracts are self-executing agreements between the involved parties. Agreements are written in code and since they are kept all across a distributed blockchain network, they become immutable and irreversible.
A specific function will be run by these computer codes if some certain requirements or conditions are met. Therefore, smart contracts can integrate both internal and external information and make human intervention unnecessary.
A native crypto coin or token often plays a vital role in these organizations. Anyone who owns these coins or tokens is able to participate in making important decisions about the organization, meaning that holding the coin or token gives the person the right to vote on every matter related to DAO. Thus, for Stakeholders who have more tokens, their votes exert a bigger influence on the network. If there is a proposal, it has to be in compliance with the DAO’s consensus rules, generally meaning that the majority of tokens need to be involved in the process of its approval.
Dan Larimer, software programmer and co-founder of Steemit, Bitshares, and EOS presented the concept of the DAO for the first time in 2015 and later it was made perfectly known by Vitalik Buterin.
The first decentralized autonomous organization was called “the Dao” and was developed by Christoph and Simon Jentzsch. Its launch was an astounding success as it raised about 150 million dollars-12.7 million Ether. This crowdfunding event was unprecedented at that time.
In spite of its successful start, hackers could steal about 3.6 million Ether from this organization because of bugs in its smart contract, thereby resulting in huge losses.
It is predicted that this new type of organization will rapidly spread globally and can be substituted for traditional organizations.
How are DAOs different from traditional organizations?
| Traditional organizations | Decentralized autonomous organizations |
| They are usually democratized | They are usually hierarchical |
| Voting can be offered, but there are mainly central decision-makers introducing and making the changes to the corporate structure | Members need to vote to make any changes |
| If there is any voting, the process of tallying the votes is usually done manually, thereby resulting in Intransparency | The outcome of voting will be published automatically, which ensures transparency |
| Activities are not usually open to the public | All activities are public and transparent |
Why are DAOs important?
When people want to play a part and put their money in an organization, complete trust has to be held among the members. However, being a part of DAO eliminates the need for trusting anyone. As a result, new opportunities will be provided for worldwide coordination and collaboration.
Due to the fact that a decentralized autonomous organization works based on the self-executing computer code, there is no need for users to intervene or interpret it. Accordingly, they are automatically run once certain conditions are met.
Since all the information and activities are recorded and kept on a transparent distributed ledger, they cannot be manipulated, meaning that they become fully immutable.
Conclusion
More and more companies are turning into DAOs to avoid getting left behind in this new age of blockchain technology. Some analysts believe than this kind of organization will be popular and prominent in a near future. Some of them also have anticipated that DOAs have the potential to completely replace traditional structured organizations.