Understand DAO’s (Decentralized Autonomous Organizations)

Blockchain technology and increasingly advanced protocols being developed out of the concept, have gained global recognition by the corporate world, especially the banking and finance industry. The hottest buzzwords include the idea of Decentralized Autonomous Organizations (DAOs), which TheBlockchainAcademy.com[1] has included in this post to discuss, in continuation of providing highly researched blockchain content for the readers and end users.

A decentralized autonomous organization, also called a decentralized autonomous corporation sometimes, is the entity that is operated by means of rules encoded as computer programs termed as smart contracts. The financial transactions record and the program rules of the DAOs are maintained on the blockchain[2]. A lot of examples of this kind of business model are seen, while the accurate legal status of this kind of business organization needs more research and analysis to be described.  The biggest example of this model is the DAO for a venture capital funding, launched in crowd funding with USD 150 million in June 2016. However, it was at once hacked and deprived of USD 50 million in the cryptocurrency[3].

Decentralized autonomous organizations are hard to explain precisely. However, the conceptual gist of these entities is typified as the ability of the blockchain technology to offer a secure digital ledger that can track financial interactions over the internet, hardened against any forgery by trusted time stamping and by distribution of a distributed database.  This approach removes the requirement to include a bilaterally accepted trusted third party in any financial transaction; therefore it makes the sequence simplified[4]. The costs of blockchain based transaction and of making accessible the related data, might be radically lessened by the removal of both the trusted third party’s need and requirement of the repetitious recording of the contract exchanges in various records; for instance, the blockchain data may in principle, if permitted by the regulatory structures, replace the public documents like titles and deeds. In theoretical terms, the blockchain approach enables multiple cloud computing for users to enter a loosely tied peer-to-peer smart contract collaboration[5].

How does it work?

DAO code is made in Solidity programming language. A DAO is triggered by deployment on ethereum blockchain. Once deployment is done, the DAO’s code necessitates ether to start transactions on ethereum. Ether is a digital fuel that runs the ethereum network. Without it, the DAO is unable to do anything so the DAO’s first step of business is to get ether. Once DAO’s code is deployed, ether is sent to the DAO’s smart contract address in the initial Creation Stage that is defined in the DAO’s code[6].

In an exchange for ether, the DAO’s code makes tokens allocated to the account of the individual who sent ether. The token gives its holder the ownership and voting rights. The number of token developed is based on the amount of ether that has been transferred. Token price differs with time. The token ownership is easily transferable on the ethereum blockchain, at the end of Creation Phase. The DAO saves ether and the other ethereum based tokens and sends them based on the DAO’s code. Nothing much else is done. It is unable to develop a product or hardware, and write code[7]. It needs a Contractor to achieve these and other objectives. A DAO chooses a Contractor by accepting the proposal of the Contractor.

This network can essentially be the technical lifeline for a decentralized sharing economy; think of that being able to accept the payments from the renters and unblock accordingly as a function of the lock itself. The DAO is entirely a novel idea. It is something in between a conventional organization, a Kickstarter and a VC fund- only completely democratic, decentralized and existing just in code[8]. By enabling the economic cooperatives to be run by a line of code, and by letting anyone on the internet to be the owners of these entities, DAOs might permit more users than ever before to participate in the process and get benefits of innovation economy. As a conclusion, it can be said that in the world of increasing automation and steadily better AI, the DAOs might turn out to be the norm over the coming decade.

Copyright 2017 Bryant Nielson. All Rights Reserved. Bryant Nielson – Managing Director of CapitalWave Inc. and Executive Director of TheBlockchainAcademy – Being a big believer in Technology Enabled Learning, Bryant seeks to create awareness, motivate adoption and engage organizations and people in the changing business of education. Learn more about Bryant at LinkedIn: www.linkedin.com/in/bryantnielson

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[1] www.TheBlockchainAcademy.com
[2] Vigna, P; Casey, MJ (January 27, 2015). The Age of Cryptocurrency: How Bitcoin and the Blockchain Are Challenging the Global Economic Order. St. Martin’s Press
[3] Price, Rob (17 June 2016). “Digital currency Ethereum is cratering amid claims of a $50 million hack”. Business Insider.
[4] Norta A. Creation of Smart-Contracting Collaborations for Decentralized Autonomous Organizations. 18 August 2015 Perspectives in Business Informatics Research. Volume 229 of the series Lecture Notes in Business Information Processing pp 3-17
[5]  Pangburn, DJ. (19 June 2015). “The Humans Who Dream Of Companies That Won’t Need Us”. FastCompany.
[6] https://download.slock.it/public/DAO/WhitePaper.pdf
[7] https://www.ethereum.org/dao
[8] https://techcrunch.com/2016/05/16/the-tao-of-the-dao-or-how-the-autonomous-corporation-is-already-here/