What are decentralized autonomous organizations and why are they needed
DAO (Decentralized Autonomous Organization) is a new paradigm of economic cooperation. As the name implies, DAO is fundamentally different from an ordinary company in a decentralized structure and autonomy.
Decentralization means the horizontal structure of the company. DAO does not have a sole owner or board of directors, each member of the organization is a full co-owner and has equal powers and unlimited access to information.
A tool to ensure such a structure is blockchain. Blockchain in this case is the electronic registry of the company, which is maintained and authenticated by all network participants.
Autonomy is ensured by independence from traditional financial and political institutions, and the replacement of ordinary money with cryptocurrency plays an important role in this. At the same time, the cryptocurrency, like any blockchain system, in itself can be classified as a DAO, as it has a decentralized structure, and most of the processes in it are autonomous.
Moreover, the DAO system makes corporate jurisprudence unnecessary, since all interactions within and between DAO are carried out using smart contracts – a software infrastructure that sets the rules of the game acceptable to the vast majority of participants and ensures ease of concluding contracts, conducting transactions, etc. In the completed form, the DAO is not only completely autonomous, but also maximally or fully automated.
If any traditional company relies on a network of legal, financial and political instruments provided by state institutions, then the DAO uses an autonomous and horizontal digital structure, embodying the classical ideas of cyber anarchism. However, this ideological correspondence does not interfere with the use of DAO within the framework of classical commercial structures, for example, for partial automation or optimization of operational processes, whether it is accounting production or legal support of the company.
Compared to traditional companies, DAOs provide their participants with greater control over their own investments and the general course of the company. But since the DAO infrastructure itself is based on the latest experimental technologies, decentralized organizations are more vulnerable to hacker attacks and software bugs.
The DAO – Titanic of Decentralized Organizations
Not to be confused with the general term DAO, the infamous The DAO project. This project was a decentralized venture capital fund, which was launched in May 2016 and raised $ 160 million during the crowdsale.
Crowdsale members became owners of DAO tokens issued on the Ethereum blockchain, which, like stocks, allowed control over the company. The goal of The DAO was to unite a large number of people into a single economic organism, which could manage the funds of investors according to the will of the majority.
Unfortunately, in June it became obvious that the developers were quick to launch the project. A critical flaw in the code allowed an anonymous attacker to steal almost a third of the company’s total capital. Attempts to rectify the situation led to even greater problems than the hack itself. To return the money to depositors, Ethereum developers implemented a hard fork, canceling a series of transactions that led to the withdrawal of money by an attacker. Most participants in the DAO agreed on the need for this step.
As you know, hard fork is a change in the rules by which the blockchain works, and it actually leads to the launch of a parallel chain of blocks. At such moments, it is important that the whole community unanimously decide to switch to new rules, otherwise the blockchain is simply divided into two parallel existing chains.
Ethereum suffered just such a fate. Many users did not accept the new rules and announced the renaming of the old blockchain in Ethereum Classic. Ethereum Classic enthusiasts maintain an ideological position on the basis of which the cryptocurrency should be protected from any external interference, and each transaction should be irreversible, even if it means losing money as a result of hacking. In addition, the adherents of the old blockchain were concerned about the enormous influence that Ethereum developers have on the rest of the community, which undermined its horizontal structure.
As a result of the fork of the Ethereum blockchain, the platform suffered a powerful financial and reputation blow. Investors got their money back, but the currency itself depreciated significantly, and the community was fragmented and demoralized.
Today, the DAO community is still alive and is using the DAOhub platform to return money to remaining dissatisfied investors and to find ways to revive the project.
Work on bugs and prospects for DAO
Today, the DAO, as a new type of economic organization, is viable and effective in theory, but requires developers to take special care in security from external attacks and random errors in the code.
Developers continue to learn from their mistakes, and the technology is becoming more advanced. Wings experts believe that the security of decentralized systems can be ensured through formal checks of each smart contract and with the help of the RSK Federation, which will consist of influential companies in the bitcoin industry that are the custodians of transactions. This will make sure that the contract will work correctly. And the Dash team, for example, increased the effectiveness of autonomous projects by offering DAO members the opportunity to choose a management team for each project. With the involvement of more and more funds and brains to solve this problem, one can expect an intensive development of decentralized organizations in the near future.
In the future, the structure of the DAO can be used within the framework of the Internet of things, where each electronic device will be a full and autonomous participant in the global economy. Thanks to the technology of smart contracts and blockchain systems, humanity will be able to almost completely automate its life. Smart homes, pizza delivery drones and robotic employees – all this can be made possible thanks to the DAO software infrastructure.