A DAO or Decentralized Autonomous Organization, refers to a revolutionary way of organizing and running organizations, making use of smart contracts and blockchain technology to offer transparency, immutability, autonomy and security to them.
Las acronyms DAO come from english Decentralized Autonomous Organization, which translates into Spanish as Decentralized Autonomous Organization.
Is a type of organization that is entirely controlled by computational algorithms. These algorithms are known as smart contracts and determine the rules for how the parties involved in the DAO should cooperate.
The DAOs are not bound by any regulation or law in particular, due to the decentralized nature where the smart contract is executed and coordinated by the organization, the blockchain (blockchain).
In the same way, these smart contracts can be as simple or complex as you have decided when programming. But they will be transparent and immutable at the time they are published in the chain of blocks. In this way, everyone can review its operation and the rules that have been programmed within, with the assurance that they cannot be modified in the future.
Being pieces of computer code, that is, purely digital language, they open the door to a new level of cooperation, being able to manage decision-making between humans, machines and other smart contracts (which can, in turn, be managed by other humans, machines and smart contracts).
That is why heDAOs are a powerful technological innovation that seeks to redefine the way in which different parties cooperate. This thanks to the fact that they allow the creation of autonomous, self-managed, transparent and more efficient organizations.
How does a DAO work?
DAOs depend on a series of mechanisms that guarantee their operation at all times. The first of them is related to the ability to schedule actions and have them run according to certain parameters. With this, the DAO gains the ability to execute actions autonomously.
Viewed more simply, This programming would become the set of rules that governs the DAO and the most usual way is to program these actions through the smart contracts.
The second mechanism is a consensus protocol. Its function is ensure that decisions are made within the DAO are taken by the consensus of its parts. No external factor to the network and those who participate directly in it can alter or cause them to make decisions.
DAOs have a third mechanism, which depends on the issuance of a token or medium of exchange. The purpose of this mechanism is to guarantee a means that financially supports the DAO. In addition, to allow users to gain voting power and, at the same time, be a mechanism for exchange and economic reward.
Finally, they have a fourth mechanism whose purpose is to record everything that happens in the DAO. This task falls to the blockchain, where all the information is stored to be accessed publicly and guarantee its security. The union of these four elements is what allows the operation of a DAO at all times.
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Basic example of a DAO
There are many scenarios to illustrate how a DAO could be used. We will simulate a simple scenario: a neighborhood association. In a traditional neighborhood association, each family pays annual fees, which are used to pay for different breakdowns and improvements in the community.
Well, using a smart contract all the neighbors could deposit the funds in the form of ethers or even some stablecoin based on fiat These funds would not be in the hands of a single person, nor of two, but they would be in the hands of everyone and no one at the same time. The smart contract would have them blocked pending democratic decision-making, remaining transparently visible but without anyone being able to treacherously use them as they wish.
For each new expense (repair or improvement, for example) a request would be generated, subsequently associating the different estimates that the suppliers send. After that, the residents could decide on the budget that interests them democratically for a certain period, unlocking the funds only for the budget with the most votes.
In this way, not only expense budgets, but also items for improvements, festivities and even the management and distribution of benefits from leisure areas or common areas could be managed in a democratic, transparent and immutable way with rules known to all. .
For example, imagine an autonomous car, bought by 10 people scattered around the world, who acts as a taxi, unlocking a payment and distributing the benefits to each partner, directly and without banks.
Or beyond Can you imagine a country managed by a DAO? The candidate politicians would spend 4 years preparing the smart contract, so that later the society decides which smart contract they want to govern them.
As you can see the use cases can be many and the limitations are yet to be discovered. Like all innovation, only creativity will tell where this new tool that Blockchain technology brings with it is capable of taking us.
Origin of DAOs
A common mistake is to think that DAOs were born with Ethereum. While is true that Ethereum It brought this concept to a large part of the public in the Blockchain sector, the birth of DAOs came much earlier.
This innovative concept was initially postulated by Werner dilger, a renowned German computer science teacher. It was Dilger who in 1997 developed his work "Decentralized autonomous organization of the smart home according to the principle of the immune system". In it, Dilger defined the bases of the DAO as a self-sustaining and autonomous system, a work undoubtedly ahead of his time. However, at the time, the idea of him was impractical. The technical challenge of creating a DAO could not be overcome until the arrival of the blockchain.
It was then that the DAO concept came to light again. On September 7, 2013, Daniel Larimer, Founder of BitShares y Steem, would talk about them in the Let's Talk Bitcoin!
By then, Daniel spoke of them as Decentralized Autonomous Companies (DAC), another common way to call DAOs.
It wasn't until 2015, when Vitalik Buterin would relaunch the concept thanks to the launch of Ethereum, which allowed the creation of advanced transparent and immutable codes (full turing), something that greatly facilitated the creation of DAOs and interaction with them.
DAOs, some real examples
Now, surely you will ask yourself: are there any DAOs in reality? The answer is yes. A DAO is not just any organization and the complexity to build it is very high.
However, that has not been an impediment for them to have become a reality. At the beginning of the article we named some as The dao en Ethereum, Dash DAO Governance y DigixDAO. These are just a few real examples of fully functional DAOs.
The case of Dash DAO Governance, is an example of use for the evolution of a cryptocurrency. This DAO is intended enable Dash governance at all levels and involve those who have a masternode. In this way, decisions are democratized within Dash and manages the financing of the project.
On the other hand, DigixDAO is another governance DAO focused on controlling the growth and development of Digix and its entire ecosystem.
The most famous DAO, The DAO
Undoubtedly, one of the best known DAOs was the project The dao. This project created in 2016 by Simon Jentzsch y Christoph Jentzsch was launched with the aim of build the largest DAO ever known using the power of Ethereum. It is not only the best known for being the most funded DAO but for what would happen next.
The result of the effort of its founders was a success and with The DAO reached its goal of $150 million USD in what would be the largest crowdfunding campaign ever known.
But the dream did not last long. Shortly thereafter, a serious vulnerability was discovered in the code held by The DAO and a hacker managed to seize $ 50 million. The fact meant a catastrophe for The DAO and even led to Ethereum applying a hard fork which gave rise to Ethereum Classic.
All this shows that although powerful, DAOs can also be a source of potential risks, especially due to their programming and the difficulty of quickly solving such problems in environments that have been designed to be immutable.
Advantages and disadvantages of DAOs
Like all types of technology, a DAO can offer its participants different advantages and disadvantages, since they depend on the programming or regulations of the DAO. However, at this point we can name some points that are worth knowing.
Advantages
- Allows you to create organizations without any kind of hierarchy. Everyone who is part of the organization can contribute ideas and vote for them, thus decentralizing.
- Its level of transparency is very high. This is because a DAO inherits from blockchain technology its ability to record all actions performed and make that record public, as well as view the source code of its operation.
- Decentralization allows DAOs to offer services globally, which eliminates borders and democratizes access to services that would not otherwise be available to many people.
- They greatly facilitate the creation of organizations, since these should only be programmed on a blockchain and from that moment, it begins to work. This saves money, time and paperwork, something necessary for the traditional registration of organizations or companies.
Disadvantages
- Programming a DAO is not an easy task. Automating tasks and the ability to make decisions is very complex. The DAO case revealed that a single line error can lead to millions of euros in losses.
- There are problems with DAOs being able to comply with regulations in many countries. This is in good way because blockchain technology and cryptocurrencies do not yet have clear regulation.
Just a few years after its creation, DAOs are, without a doubt, an incredible technological tool that could be part of any great future revolution to come. Surely this revolution ends up coming from people not conditioned by the current limitations of society, visionaries. Who knows, maybe that person is you.