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August 09, 2018Blockchain is changing the world and with it the old business structures. So we all know organizations and had to deal with them at one point in our lives. They can reach from small to big. But all of them have one thing in common – they are all centralized. Blockchain becomes more popular and with it, decentralized autonomous organizations (DAO) emerged. They don’t need any central instances that take control. In this article, we will explain what a DAO is and how it works.

“Everything about Decentralized Autonomous Organization (DAO)” – Content:

1. What is a Decentralized Autonomous Organization?
2. How does a Decentralized Autonomous Organization work?
3. Decentralized Autonomous Organization Example
4. Attributes of DAO’s
5. Advantages and Disadvantages of DAO
6. Summarized

What is a Decentralized Autonomous Organization (DAO)?

Most companies that we know are centralized. They are not transparent and are controlled by a few powerful people. So they control the property through a legal system. If we want to change that, we need a decentralized organization. Thus, they are based on the Blockchain. As a result, we can get rid of the old centralized structure.

A DAO is a company that operates almost completely autonomously on a blockchain. There is no hierarchical management system like in traditional companies. DAO’s are defined with the help of Smart Contracts. Thus, they allow us to implement processes, rewards, and rules via source code. The network keeps a record of all members in order to define the rights of each person. The blockchain stores all this information. So, this enables a DAO to make its own decisions. We only need employees for administrative tasks. If we want to change the strategic direction of our company, we only need to change the source code. As a result, we can create a highly efficient, transparent, autonomous and secure virtual company.

How does a Decentralized Autonomous Organization work?

In order for a DAO to work we first need rules. They are important to create security. We can define the rules in the code using Smart Contracts. The consensus mechanism ensures that everyone follows our rules.

In a decentralized autonomous organization, every action is a transaction. That means, for example, if you want a higher salary, that implies a transaction. Each transaction is a vote. This vote is represented by a token. Smart Contracts execute the token. As a result, your request for a salary increase is displayed on the DAO.

Everyone who owns a token can now vote for or against your proposal. If you get the majority, you get more money. Here, each wallet address represents one employee. Every employee owns a certain number of tokens. Thua, the more tokens you own, the more weight your vote has.

Decentralized Autonomous Organization Example

For example, the social media platform Steemit operates through a DAO. You get money for creating content to attract attention. Thus, the whole system works decentralized. Therefore, it has even more potential then Reddit.

Attributes of DAO’s

So smart contracts define a decentralized autonomous organization. But a good organization also needs liquid funds. It needs to make good decisions and communicate with all instances. Today DAO´s have the following attributes:

Autonomous:

All parts have to be implemented through smart contracts on a blockchain. It’s also open-source. So that means you can trust them. You also have to make sure that there is no central instance. So we can use autonomy to be more efficient.

Tokens:

To reward certain actions, a DAO needs an internal property that is valuable. When you create a DAO, a funding takes place. So they do not have a hierarchical structure or management.

Employee:

Before we can create a DAO, we need some people to help fulfill certain tasks. These are mainly administrative tasks.

Proposals:

In order to develop a DAO, we have to make decisions towards the future. We make these decisions democratically. Thus, if 51% of the members agree the proposal will be accepted. As a result, you can save a lot of time and money. Also, a DAO can use that money to prevent people from spamming the network.

Voting:

After passing in a proposal, the actual voting takes place. This takes place demographically and if 51% agree, the proposal is considered as approved. Since a DAO runs on the blockchain, you can trust the result of the vote.

Transparency:

All processes have to be transparent for all members. Thus all can join in and work in the same case. The blockchain captures everything. So a DAO can’t be changed or manipulated.

Consensus:

On a DAO, we vote on everything together. So even if you find bugs in the code, they can only change it when the voting has taken place. When we reach consensus, then the blockchain executes our decision.

Advantages and Disadvantages of DAO

So we have an organization that is able to reduce their costs to a minimum. It does this through a fast and simple decision making. Thus, we don’t need any employees to fulfill administration tasks. This reduces the complexity a lot. As a result, you do not need any office. You can work distributed from all over the world and reach your full potential.

With a lot of advantages, there are always some disadvantages. A disputed point is trust. People develop smart contracts. Therefore, you can have errors. We do have to trust them to do their job correctly. One mistake can lead to the failure of the system. Thus, the whole trust lies in the code.

Summarized:

• Blockchain is changing the world and with it the old business structures.
• So a DO can set a whole company on a blockchain.
• They eliminate the old structures. But they need some people to work with each other.
• A DAO is autonomous.
• Thus, Smart Contracts define a DAO.
• Advantages are it reduces costs and increase efficiency.
• Disadvantages are errors in the code.

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