We continue our deeper look at crypto terminology, focusing on a “newer” term in the crypto space. What is a Decentralized Autonomous Organization or DAO?
A DAO is a decentralized organization that has no central leadership (hence the “D” for decentralized) where all participants can contribute ideas and the smart contracts built into it.
If you’ve read any articles about DAOs over the past few months, you’ll see the same three or four benefit bullets consistently
- Everyone can contribute to a DAO’s design because there is no fixed hierarchy or central leadership
- DAOs are transparent and auditable; you would expect this from anything using a blockchain
- DAOs offer anonymity because they are based on the blockchain (Bonus bullet) DAOs can be used to manage your organization or entity from the bottom up
- As you would expect in nearly anything crypto-related, DAOs are powered by blockchain technology to operate as a digital ledger for transactions and are run by the rules coded within the smart contracts.
How a DAO Works and Why it’s so Revolutionary?
A DAO is designed to be completely transparent, inviting everyone with an internet connection to take part in the process of decision-making while not requiring any human or in-person leadership.
It’s revolutionary because it’s an innovative way to structure organizations (a corporate commune with clearly defined runs) that are powered by their smart contracts and blockchain technology. Additionally, AI tenants can be implemented in one of two primary ways: as a pure computation engine or as an embedded component in a product.
The idea of DAOs has been around for a few years now, but it’s only recently that they have seen more widespread adoption in the real world. One of the best examples is from the entertainment industry where artists avoid traditional models and take ownership of their work. By using a DAO, artists are ensured to be paid for every piece sold, tracking the owners and royalties that are due.
DAO-powered Platforms- A New Business Model for Startups?
With the arrival of blockchain technology and improved DAO-powered platforms, new opportunities arise for companies to take advantage of the decentralization in the form of a democratic organizational structure. This gives startups more autonomy and flexibility that is often lost in traditional centralized structures. “Real world” examples include crowdfunding, social groups, and non-profits. In these situations, DAOs can raise funds for global efforts, beyond a single country’s jurisdiction. The challenge for DAOs is that, unlike typical crowdfunding sites, like Kickstarter, or investment sites, like StartEngine, there are no “SEC type protections” or a method to get your funds back if the DAO site is actually a scam.
So why doesn’t everyone use a DAO-powered Platform for their startup?
Given the flexibility and collaborative nature of DAOs, why don’t more startups use the business model? Well, imagine trying to purchase a domain name or physical asset without a named individual. How does the DOA execute an agreement for services? For some organizations, like social clubs or collectors, these considerations are not as critical, as they are not financially based. For those companies where finances are a consideration, there is a cottage industry that is starting to help companies create a DAO, run proposal votes, and handle disputes.
And the physical world is starting to catch up as well. In Wyoming, a DAO can be created using an Ethereum address.
Conclusion: Blockchain & DAOs are Revolutionizing Business Landscape Worldwide
A key problem in business today is that it is hard to coordinate across big, slow hierarchies. DAOs provide the opportunity to create decentralized organizations that are not just more efficient but are also distributed in nature.
This new organizational structure provides better access to information at all levels of the company. There are many blockchain-based models for running companies that have created a revolution in the business world. Interested in hearing more about them, just reach out to the team at Vast Agency.