Please click the link below to listen to the 54th episode of my weekly crypto podcast ‘Two Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Comments and critiques welcome.
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What is a Decentralized Autonomous Organization (DAO)?
Welcome to Two Minute Crypto. This installment of the Key Concepts Series examines Decentralized Autonomous Organizations or DAOs. On the EOS network, the same concept is described as a Decentralized Autonomous Community or DAC. As usual, the goal is to explain this crypto concept in as simple and succinct a manner as possible. Given the unavoidable complexity involved in explaining a DAO, I highly recommend you listen to this explanation at least twice.
A Decentralized Autonomous Community (DOA) is a collective of individuals co-operating in an online environment to run and support a system or network; that system being structured around rules encoded in the software or smart contracts on which it operates. In effect, a self-organizing, digitally operating social system. Each DAO will vary in terms of complexity, scale, and goals but they all share a few key qualities.
Blockchain and Smart Contract Based
Every DOA operates on top of a blockchain whose function is to immutably and openly record all collective decisions and facilitate some form of transaction or data transfer utilizing a token. The token is the blood of the system, facilitating data validation, transfer, and storage. In addition, the moment by moment operation of the organization is controlled by a set of smart contracts which execute automatically once certain conditions are met on the network.
Distributed Decision Making
The bedrock of any DAO is the distribution of voting rights beyond a central authority. The whole idea is that the network is governed by the members who comprise it – it is a bottom up approach to running an organization. Exactly how this is implemented will vary from DAO to DAO. Some may have elected boards that rotate from time to time, others may involve all members in any decision which changes the network and everything in between. Nonetheless, the core goal is to spread authority through the group. Voting outcomes are then automatically enforced or carried out by the DAO’s smart contracts.
Code as Law
A DAO will operate within a set of encoded software rules. If A then B and so on. These rules cannot simply be changed by an individual. Indeed, the parameters of change will already be laid-out within the software or smart contracts themselves. For example, a two-thirds vote may be required to change core governance. The network itself prevents ‘hijacking’ of the project as a few individuals cannot easily aggregate power or network control into their own hands.
DAOs are not meant to be unalterable and through member consensus may evolve but they cannot simply be re-purposed without that consensus (member agreement as predefined in the smart contracts that operate the DAO) first being achieved. Of course, if the smart contract itself is flawed it may result in unintended consequences such as a hack or the lock-up of funds as famously occurred on the original Ethereum network in 2016.
Decisions in a DAO are recorded on the network and access to that record is freely available. Who, what, where, when, why, and how much are all immutably entered onto the ledger of that system.
The practical applications of DAOs and DACs are just now being explored. In theory, large scale corporations could function through the sophisticated interaction of smart contracts and distributed governance. At the moment, it is in decentralized finance that DAOs seem to be making great strides. Maker DAO a project running on the Ethereum Network is an example of a fully functional decentralized autonomous business specializing in collateralized crypto loans. On the EOS blockchain eosDAC is in the latter stages of rolling out a Decentralized Autonomous Community service that will, in theory, allow the hosting and setting up of DACs tailored to different needs – an operating system for decentralized communities if you will.
The coming years will almost certainly see a great expansion of this new collective organizational model. How stable or viable they will turn out to be remains to be seen.
Thanks for Listening.
Decentralized Autonomous Organization
What is a DAO?
Introducing eosDAC: DAC Factory