In this week’s blog we will talk about Decentralized Organizations or also known as DAOs (Decentralized Autonomous Organization).
But first, have you read about DAOs before? Do you know what its importance is today? Continue reading and we will tell you what it is about.
What are decentralized autonomous organizations?
These types of organizations have a characteristic that differentiates them from the rest and that is that they are governed by rules encoded in computer programs, called smart contracts or smart contracts.
Through the use of smart contracts, they can work with external information and execute orders based on that information, and that’s not all, because this action is performed without any human intervention. In other words, DAOs can function autonomously, without seeing the need for a central authority.
But there is something that we must understand, the operation of a DAO is based on the consensus that is established among its members and to achieve that consensus, the use of the Blockchain is used.
Pay attention to this example from Mike Hearn, a long-time contributor to the Bitcoin protocol, which he used to describe a DAO.
“Imagine a driverless taxi looking for passengers. It charges these passengers for the trip, and immediately and autonomously, it uses those profits obtained to go to the charging station or a workshop to fix any breakdown. The car does not need external help to know what to do, it just follows a series of programmed rules.”
In summary, establishing a company or an organization that works without hierarchical management and better organization, is the main idea behind the Decentralized Autonomous Organizations.
🔵 Smart contracts are tools that use the combination of protocols and user interfaces to protect computer networks.
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How do they work?
The Decentralized Autonomous Organizations work with cryptocurrency projects and also use Blockchain technology.
Now, let’s focus on the most relevant to understand clearly how they work:
- They have the ability to act independently.
- They are decentralized.
- They are organized through smart contracts.
- They are governed by a set of rules in order to function.
- They are transparent platforms.
- Members who participate in a DAO can make proposals regarding its future.
- A member’s vote can increase based on the amount they have invested in the project.
Origin of the Decentralized Autonomous Organizations
There are those who consider that Bitcoin was the first DAO, although the term was not coined until years later. However, one of the first recognized Decentralized Autonomous Organizations was the investment company “The DAO”, founded by two Mittweida brothers, Christoph and Simon Jentzsch in 2016.
It was created with the intention of becoming a cryptocurrency project in itself, without having a physical space, or bosses, or hierarchy. It was based on Ethereum.
And the concept was simple, it was about a community that collects funds in the form of cryptocurrency Ether and had to choose which cryptocurrency projects to invest in together. It allowed access to anyone in exchange for future members buying tokens.
It raised $150 million from token sales at its IPO. Incredible?
Advantages
- If it is structured properly, each investor has the opportunity to shape the organization.
- Proposals can be submitted by a member and be considered by the entire organization, taking into account that there is no hierarchical structure.
- Following the established rules, it gives the possibility to any investor to know them before joining.
- Everyone who participates helps decide how to spend the funds.
- Anyone can keep track of how those funds are invested.
Why are decentralized autonomous organizations important?
The concept of decentralized autonomous organizations evolved with the advent of Ethereum and its Blockchain network, which changed from a Blockchain-based type of organization to one based on Smart Contracts.
And thanks to this, there are currently new organizational forms based on consensus, transparency and security that these networks allow to create.
Examples of DAOs:
The Bitcoin network can be considered an example, because it works in a decentralized way and is coordinated through a consensus protocol without hierarchy between the participants.
Another example is The DAO, this organization (we already told you about it before) that proposed an autonomous investment fund where the majority of the network participants were the ones who made the investment decisions.
3 Types of Problems They Face
- legal.
- Coordinated attacks.
- Centralization points.
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We have seen how decentralized autonomous organizations allow a broader range of participants to collaborate more broadly, but it is imperative that the rules are recorded in smart contracts.
Do you think that these types of organizations will be used by more people in the short term?