What is a DAO: How Decentralized Autonomous Organizations Work?

Decentralized Autonomous Organizations, or DAOs, continue to gain popularity within the evolving cryptocurrency community. These organizations operate on the blockchain, a decentralized public ledger meant to store immutable and anonymous nodes of information.

The implications of DAO technology for the growing blockchain community are extensive. Professionals postulate that the tech can help to maximize the efficiently of interactions and transactions on the blockchain.

Despite the incredibly positive outlook for the technology as it continues to develop, many consumers still don’t know the first thing about Decentralized Autonomous Organizations. Their massive impact on the developmental future of the cryptocurrency ecosystem means that the average member of the community should be aware of not only what the technology is, but how it can help to change the world around them.

  • This guide will provide a brief introduction to the core technical and business aspects integral to the Decentralized Autonomous Organizational model, as well as the potential within the industry for continuing development.

DAOs And Smart Contracts

Decentralized Autonomous Organizations make use of smart contracts to ensure the self-governance of their organizations. This means that a set of rules, rules which do not change based on circumstances surrounding the organization, work to govern the progress of the organization they regulate.

The main impact of this system is that it does not allow for the interference of outside parties in financial interactions that occur within the organization. This benefits consumers conducting business within the DAO because it both improves the efficiency of the transaction and minimizes the fees involved in its execution.

Smart contracts help to minimize the human interaction involved in financial transactions within the DAO. These smart contracts execute the specifications of the contract once certain obligations are fulfilled, without the need for a third party to approve action. In short, smart contracts are used to place the power of transaction execution within the DAO outside of the hands of the third parties typically placed in charge.

User Input In The Decentralized Autonomous Organization

As the name might suggest, decentralized organizations put the power to make important decisions within the hands of the users that help to fund them. DAOs first go through a funding period where they raise the capital necessary to make their project a reality. Once this happens, it is up to the users who funded the project to determine how funds are allocated.

Votes are given weight, depending on the amount of tokens that the voter possesses. When a user decides to propose for a funding decision or idea, every person who owns the requisite amount of tokens in the DAO will be able to cast their vote against or in favor of the proposal.

Business Organizational Applications

In theory, DAO technology is poised to make organizations more efficient by allowing shareholders to directly influence the company to behave in the way they feel is best. In practice, however, the application is much less effective. The decision-making process is lengthy and complicated, and with potentially thousands of users casting opposing votes, it becomes largely inefficient as a decision-making model for businesses.

For DAOs to become part of the mainstream, organizations need to figure out a way to maximize the efficiency of the process without taking away from the original intent of the idea behind the decentralized network organization.

DAO Susceptibility To Theft

The first decentralized autonomous organization, known simply as The DAO, made international news following the loss of millions of dollars in Ether, a cryptocurrency created by the Ethereum platform, by hackers and thieves.

Consequently, it is fair to say that the first DAO was a pretty big failure, at least in the eyes of the public. The loss of these millions of Ether created a deficit in price, causing the currency’s value to fall over eight dollars within just a few hours.

Dash DAO Recognized By International Community

Dash is a payment system on the blockchain which offers peer-to-peer transactions. It also relies on the self-governance paradigm native to the DAO setup. It has become a recognized form of currency in some countries, and continues to gain traction as a legal entity.

In the future, the mainstream embrace of DAO technology is reliant on several things. Specifically, decentralized autonomous organizations must overcome the efficiency and security concerns which have created problems in the past if they are going to become more accepted by the increasingly volatile cryptocurrency and blockchain market.

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