When used in the context of cryptocurrency and blockchain technology a DAO is a Decentralized Autonomous Organization. It is a self governing organization whose rules are embedded into the blockchain via smart contracts. There is no centralized server or entity overwatching the organization’s operations, a group of shareholders have a say in the direction which the organization will take.
Make no mistake that DAOs do have a central manager who has a say in the voting rules and decides who the members will be. In a way a DAO is a true democratic organization where every proposal can be verified on the blockchain for the amount of votes it has received.
When deploying a DAO on the Ethereum blockchain one can choose the amount of votes a proposal needs before it can be executed, the minimum amount of minutes that needs to pass before a proposal can be implemented, and the amount of votes needed to execute a proposal. As such, a DAO administrator can create a system where full consensus is needed for a proposal to pass, or only a 50% majority is required.
You may have also heard of the term DO (Decentralized Organization), just like a DAO, a DO decentralizes the hierarchy of positions in a company by having specific protocol embedded in the code, a DAO also has inherent value which it can use to reward it’s participants, something a regular decentralized organization cannot do. An example of some services which can be used with Decentralized Organizations are cab rides, unlocking doors and food delivery. Such services can be fully automated by a specific protocol, but neither system has an inherent value which it can use to reward it’s participants.
A true DAO needs to be so smart that it can hire new employees and fire poor performing ones. Currently there are no true DAOs which we can use as examples because even the concept of Decentralized Applications is brand new to us. Vitalik Buterin – the founder of Ethereum – makes an interesting point in his article regarding DAOs, DACs, and DAs that Bitcoin in itself can be seen as a DAO.
The best way to classify Bitcoin would be as a DAO with an imperfection in its implementation of autonomy.
Bitcoin has internal capital in the form of market value, while humans do help with the network (mining pools, nodes, wallets) the payment system itself is completely autonomous. That is the definition of a DAO – automation at it’s heart and humans at the edges.
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