If you are a cryptocurrency enthusiast, you have probably encountered this the question; what is a DAO? A decentralized autonomous organization is a business whose main decisions are made electronically. Written computer codes or members’ votes are used when making decisions rather than leaving it to one individual.
Upon the invention of blockchain technologies, there was a need to apply the decentralization concept behind blockchain technologies to the real world. The easiest way to do this would be through the use of blockchain technologies to come up a digital ledger for tracking all interactions between members across the web. This would help provide a secure and safe foundation for building a decentralized autonomous organization.
DAOs and Smart Contracts
DAOs are synonymous with smart contracts. Decentralized autonomous organizations are a sophisticated form of smart contracts in the sense that the by-laws of decentralized organizations get entrenched into the codes of smart contracts. This is done using complex token governance rules.The Bitcoin network was the first true DAO since it was solely coordinated using a distributed consensus protocol that anyone could adopt. Anyone who asks what is a DAO today will be surprised to discover that DAOs have shifted up the technology stack.
Thanks to technology, companies are increasingly becoming more virtualized. For a company to be considered as being a DAO, an intricate mix of human-machine systems and technologies has to be put in place to create a fully functional yet autonomous infrastructure. DAO generally materializes ass mart contracts, which is a piece of code that is executed at the peak of an increasingly impervious stack of consensus and distributed networking technology like it is the case with Ethereum and other similar blockchains.
What are the Advantages of DAOs?
The idea behind the concept of DAOs is autonomy. This in itself is quite exciting since it aims to solve the inherent problems that hinder the running of modern-day organizations. A well-structured DAO can give each investor the opportunity to play a role in an organization’s decision making processes. Since there isn’t a hierarchical structure, every idea that is proposed can be considered by everyone else and agreed upon.
Most DAOs have minimal conflicts since there is always a set of rules that govern each stakeholder. Before investing in a DAO, you will be made aware of these pre-written rules. A voting system that considers all investors to be equal leaves little room for conflicts.
Problems that Face DAOs
Arguably, the universal problem that faces most DAOs is the participation of all shareholders in decision-making. For instance, there is always a lack of involvement in the voting processes of DAOs by investors. Similarly, it is difficult to change a DAO’s smart contracts or code once it has been deployed in a blockchain.
Implementing a DAO structure can go a long way in ridding organizations of inefficient human managers and systems. The most appropriate answer to the question what is a DAO lies in the fact that this will be the must-have business model in future.