What is DAO in the Internet world?

What is DAO in the Internet world?

Table of content:

  •  What is DAO?
  •  What is The DAO?
  •  Work on bugs and prospects of DAO

What is DAO? DAO (Decentralized Autonomous Organization) is a new paradigm of economic cooperation. As the name implies, DAO fundamentally differs from the usual company with its decentralized structure and autonomy.

Decentralization stands for a horizontal company structure. DAO does not have a sole proprietor or board of directors, each member of the organization is a full-fledged co-owner and has equal powers as well as unlimited access to information.

A tool that allows to provide a similar structure is a blockchain. In this case it is an electronic register of the company, which is maintained and certified by all network members.

Autonomy is ensured by independence from traditional financial and political institutions, and an important role in this is the replacement of conventional money by cryptocurrency. At the same time, the cryptocurrency, like any block system, itself can be classified as DAO, since it has a decentralized structure, and most of the processes in it are autonomous.

Moreover, DAO system makes corporate jurisprudence unnecessary, since all interactions within and between DAO are carried out with a help of smart contracts – a software infrastructure that sets acceptable rules for the absolute majority of participants in game rules and provides simplicity in concluding contracts, conducting transactions, etc. In its completed form, DAO is not only completely autonomous, but also fully automated.

A smart contract feature is plain: numbers of parties is strictly limited. These members can even don’t know each other at the time when a contract starts; a sell order where A offers to sell 50 assets to anyone who can provide 10 assets in exchange for B is also a smart contract. These contracts can last forever; contract-savings or escrow service are great samples. Nevertheless, a smart contract that will never end should also have a limited number of parties (as a result, an entire decentralized exchange is no longer a clever contract) and agreements that will not last forever are smart contracts, because a limited contract time involves the implication of a limited number of parties.

If every traditional company relies on a network of legal, financial and political tools provided by state institutions, then DAO uses an autonomous and horizontal digital structure, embodying the classical ideas of cyber anarchism. However, this ideological correspondence does not prevent the use of DAO in the framework of classical commercial structures, for example, for partial automation or optimization of operational processes, also it can be accounting as well as legal support of a company’s activities.

In comparison with traditional companies, DAO provides its members with greater control over their own investments and the company’s general course. However, since every infrastructure of DAO is based on the latest experimental technologies, decentralized organizations are more assailable to hacker attacks and software errors.

What is The DAO?

You should not mix a common term of DAO, with the DAO project. The project was a decentralized venture fund. It which was launched in June 2016 and raised $ 160 million in crowdsales.

Crowdsales members became owners of DAO tokens released on the Ethereum blockchain, which, like the shares, made it possible to exercise control over the company. A purpose of The DAO was to unite a large number of people into a single economic organism that could manage the funds of investors according to the will of the majority.

Unfortunately, already in June it became obvious that the developers hurried up launching this project. A critical flaw in the code allowed an anonymous attacker to steal almost a third of the company’s total capital. Attempts to remedy the situation led to even greater problems than hacking itself. To return the money depositors, the developers of Ethereum carried out a hardfork, abolishing the series of transactions that led to the withdrawal of money by the attacker. Most of the participants in the DAO agreed with the need for this step.

As you know, hardfork is a change in the rules by which the blockchain is running, and it actually leads to the launch of a parallel blockchain. At such moments, it is important to unanimously decide the entire community to adopt new rules, otherwise the blockchain is simply divided into two parallel existing chains.

Ethereum suffered such a fate. Many users did not accept the new rules and announced the renaming of the old blockbuster in Ethereum Classic. Enthusiasts of Ethereum Classic advocate an ideological position on the basis of which the cryptocurrency must be protected from any external interference, and each transaction must be irreversible, even if it means a loss of money as a result of hacking. In addition, adherents of the old blockchain were concerned about the huge influence that Ethereum developers have on the rest of the community, which undermined its horizontal structure.

Because of the fork of the blockade Ethereum, the platform dealt with a powerful financial and reputation strike. The depositors received their money back, but the currency itself was significantly depreciated, and the community was fragmented and demoralized.

Today, The DAO community is still alive and uses the DAOhub site to return money to the remaining disgruntled investors and to find ways to revive the project.

Also, after the launch and hacking of the DAO, the developers realized that the world needs a similar project, and decided to make a project similar to the DAO, called Charity DAO. Charity DAO is a more narrow-profile project, because it is directed solely at charity. In our time, most people do not make donations to charities, since they do not trust them. Charity DAO can help in this, because, like in the DAO, people will not distribute funds manually, it will be entrusted to the Charity DAO program code. In this way, developers will be able to eliminate a possibility of hacking the network, and it will help many people.

Work on bugs and prospects of DAO

For today, DAO embodies a new type of economic organization, which is viable and effective in theory, but requires developers to be particularly careful in a field of security against external attacks and random errors in its code.

Developers continue to learn from mistakes. This technology is becoming more and more perfect. Specialists from Wings believe that it is possible to ensure a security of decentralized systems through formal checks of each smart contract and with the help of the RSK Federation, which will consist of powerful companies in the bitcoin industry that are custodians of transactions. This will make sure that the contract will work correctly. In addition, the Dash team, for example, increased the efficiency of stand-alone projects, offering DAD participants the opportunity to choose a team of managers for each project. Involving every large funds and minds to solve this problem, we can expect an intensive development of decentralized organizations in the near future.

In the future, DAO structure can be used within 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, mankind will be able to almost completely automate its life. Smart homes, pizza drones and robotic staff can all be made possible by the software infrastructure of DAO.

To sum up, it is important answer the question: what is a DAO? A decentralized autonomous organization (DAO) or a decentralized autonomous corporation is an organization operating based on smart contract rules. Records of financial transactions of DAO and program rules of contracts are stored in a chain of transaction blocks. We can find several examples of the implementation of this business model. A legal status of this method of doing business is not entirely clear.

The most well-known example of such organization is The DAO, a decentralized autonomous organization for venture financing. It began operations by crowdfund raising of $ 160 million in June 2016.