An Overview: Decentralized Autonomous Organizations

How does it sound when you know you could organize with people across the globe and make your own rules & decisions – autonomously that are all encoded on a blockchain? Sounds interesting, isn’t it? DAOs are exactly what makes this real!

A decentralized autonomous organization (DAO) is an emerging type of legal structure with no central authority, and the members involved are all committed to acting in the organization’s best interests. The DAO is used to make decisions and rules in a bottom-up management approach.

The Evolution of DAO

To begin with, the DAOs are developed with the inspiration of cryptocurrencies and their decentralized nature. This indicates that cryptocurrencies are distributed among numerous computers, networks, and nodes rather than under a single organization’s jurisdiction like a government or central authority. Virtual currencies sometimes use this decentralized nature to achieve high levels of privacy and security that are normally not possible for transactions with traditional currency.

Coming back to the DAOs, they have gained popularity among bitcoin & cryptocurrency enthusiasts and the blockchain technology realm. The decentralization nature is what caught the evolution of DAOs. Decentralized autonomous organizations, or DAO, were launched in 2016 by a group of developers as an outcome of the decentralization of cryptocurrencies. The primary goal of a DAO is to foster the management and monitoring of an entity that simulates a corporation. The lack of a centralized authority, however, is what really makes a DAO unique; instead, the group of leaders and participants operates as the governing body.

The DAO was envisioned to be an autonomous and decentralized organization. It functioned as a venture capital fund based on open-source code and lacked a traditional management structure or board of directors. The DAO was unaffiliated with any nation-state to be wholly decentralized, albeit using the Ethereum network.

The DAO was launched at the end of April 2016 as an outcome of a month-long token sale (public offering) that generated more than $150 million in money. The launch was the most prominent crowdfunding fundraising campaign of all time at the time.

How do the DAOs work?

The rules, decision-making, and financial transactions of a DAO are tracked on a blockchain, and they rely on smart contracts. With these smart contracts’ involvement, it makes it unnecessary to include a third party in financial transactions, thus streamlining and simplifying them. A smart contract is what gives a DAO its stability. The organization’s storage is held by the smart contract, which also symbolizes the organization’s regulations. DAOs are open and visible, so no one can change the rules without others noticing them. Since a DAO can be set up as a general partnership, it can operate just fine without the legal backing that businesses have always had.

The organizational structure of DAOs is more democratic than that of traditional businesses. Any modifications to a DAO must be approved by most members rather than being carried out by a single party (depending on the organization’s structure). DAO funding is mostly based on token-based crowdfunding. While traditional corporations’ governance is mostly centered on CEOs, boards of directors, activist investors, etc., decentralized autonomous organizations (DAOs) are governed by the community. While traditional businesses’ activities are private, only the organization knows what is happening, and they are not always worldwide, but DAOs’ operations are wholly transparent and global.

The Advantages of DAOs

Decentralization: Decisions affecting the organization are made by a group of people rather than a central authority that is frequently vastly outnumbered by their peers. Instead of relying on the actions of a single person (CEO) or a small group of people (Board of Directors), a DAO can decentralize authority across a much more comprehensive range of users.

Participation: Individuals within an entity may feel more empowered and connected to it if they have a direct say and voting power on all issues. Although these individuals do not have significant voting power, a DAO encourages token holders to vote, burn tokens, or use their tokens in ways that they believe are best for the entity.

Publicity: Vote casting occurs via blockchain within a DAO and are publicly viewable. It thus requires the user to act in ways they believe are best, as their votes and decisions will be made public. This urges actions that benefit voters’ reputations whilst also discouraging acts that harm the community.

Community: A DAO concept encourages people worldwide to work together to build a single vision. Token holders can converse with other owners from anywhere globally using only an internet connection.

While DAOs have their own limitations, such as it requires high technical expertise to implement and function. Otherwise, it may invalidate the decisions made and votes cast. Due to its nature of bringing individuals together to coordinate, it might get bogged down in trivial and administrative tasks. As a result, this could result in the inefficiency of a DAO implementation. However, the DAOs have great potential and are picking up the streams by supporting creators and organizations. Businesses and brands definitely should integrate their platforms with DAOs to improve the experience and engagement with their consumers.

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