The DAO (Decentralized Autonomous Organization) is represented by a set of rules transparently encoded as a computer program. This community is run entirely by its members, with no outside influence. The DAO is now used for a number of things, including fundraising, investing, donating, and purchasing or borrowing NFTs.
According to its set of rules, autonomy, and protocol, Bitcoin can be considered the first fully functional DAO. One cannot say that all the DAOs that have been introduced have been as successful as Bitcoin. Due to a hacking event in June 2016 that resulted in the loss of $50 million worth of Ethereum from the DAO, people’s trust was revoked in the DAO and Ethereum, although the problem was with the coding and not the technology itself. The recent outburst of DeFi (decentralized finance) in 2020 has piqued interest in DAOs again.
How DAO came to be
The most prominent attribute of digital currencies is their decentralization. It means that they are not controlled by a central institution such as a bank or a government; such systems instead work on a variety of nodes and computer networks. The DAO was created with the same notion of cryptocurrency decentralization in mind. It was created in 2016 by a group of developers with the goal of bringing automation and decentralization to the realm of cryptocurrency transactions. These programmers were staunch believers in the idea that giving an automated system decision-making authority would eliminate human errors.
Understanding the workings of the DAO
The DAO, like all other digital assets, is based on the blockchain. The blockchain stores all of its transaction data and regulations. Smart contracts are used to simplify transactions in this type of transparent system, which eliminates the need for a third party. Smart contracts essentially represent the storage of the organization and the set of rules for that organization. Because the DAO is open to the public, no one can make changes to the rules without being noticed. Despite the fact that it has no legal existence yet, it is a stable financial community due to its organized partnership.
A fully functional DAO requires the following:
- The most important factor is to prepare a secure structure that allows every member to rightly configure the organization.
- It must operate according to a set of regulations.
- Securing funds, such as tokens, is the second most crucial aspect in building a fully operating DAO. These funds are used to reward members for completing specific tasks.
- Providing voting rights to each member in order to determine operational norms.
Why is the DAO necessary?
- The DAO does not follow any hierarchical structure as all the rules are embedded into code, thus bringing democracy to the financial world.
- There is no interference from an intermediary, and changes are implemented according to the voting outcomes.
- Voting among all the members is necessary in order to implement new rules or changes.
- All DAO activities are completely open to the public and transparent.
- The absence of centralisation and manual transactions leaves no room for human errors and manipulation.
Conclusion
The DAO’s vision is to build a collective organization and provide an individual voice to all its members, and it is heading in the right direction. DAO is a leading organization that will soon come into prominence considering the current trend with the creators. Many industry insiders and analysts believe the DAO will eventually supplant traditional companies.
