Decentralized Autonomous Organizations: Blockchain Beyond Business

Decentralized Autonomous Organization (DAO) is an organization that is based on and governed by a set of defined rules and blockchain-based smart contracts.

What are Decentralized Autonomous Organizations (DAOs)?

With the massive adoption of blockchain technology, a new form of company or organization is becoming increasingly popular. A decentralized autonomous organization, or DAO, refers to a company managed in a decentralized way through blockchain-based smart contracts. The main idea behind a DAO is to enable a large community of contributors to participate in the management and further development of the company.

A DAO is implemented through a combination of different smart contracts that allow participants to equally participate in the decision-making processes within the organization. Decisions made by the contributor community include how the company will use funding and resources. The plans and rules of the organization require that a certain part of the community come to consensus. Consensus is achieved through a decentralized, distributed blockchain, and each DAO determines the percentage needed to make a decision.

Bitcoin was originally considered the first project to approach a DAO. However, with the advent of the Ethereum blockchain and its smart-contract capabilities, DAOs began to evolve and approach the ultimate goal of full transparency and community management.

Currently, the idea of decentralized autonomous organizations is still under active development, as it is a relatively new phenomenon in the business world. An important distinction should be noted: VAOs cannot produce products, develop code or equipment.

However, VAOs can easily hire contractors to perform all of these services once the community consensus approves the hiring contract. By their very nature, decentralized autonomous organizations must be fully transparent, so that all financial transactions conducted by the company are visible to all shareholders and the DAO community. In addition, the smart contract and underlying DAO code are publicly available. Such a high level of transparency is critical to the DAO concept. Just like the motive behind cryptocurrencies, the idea behind a DAO is to transcend traditional centralized company management and create a completely transparent organization whose actions and finances are completely public.

Decentralized applications (DApps) play an important role in DAO-related activities. DApps are software developed through smart contracts, and DAOs are essentially a type of decentralized application. While some DApps are created to perform money management functions, DAOs are designed to serve as a decentralized decision-making platform for the community.

One important distinction should be noted: as open-source software, DAOs can be targeted and exploited by hackers. A famous case of such a mistake occurred with an organization called ‘The DAO’ that was attacked by a group of hackers and most of its funds were transferred to a fake DAO.