In today’s blockchain era, day by day DAO is getting popular. Thousands of companies are now indulging in DAO. The Internet is now taking this world to a new technological era WEB 3.2, giving way to a growing set of blockchain.
What Is DAO?
Decentralized: Where there is no control of central authority
Autonomous: This is self-governing and there is no influence of outer entity.
Organization: Group of people who form a business etc.
It was first developed by Werner Dilger, a renowned German computer science teacher who published a work titled Autonomous Organization according to the principle of the immune system. In this, Dilger defined an autonomous system that exists on the futuristic internet.
But this could only be achieved at the time of the blockchain era and now DAO is just like any other organization for business where people come together with the same goal whether it is for starting a company or investing in assets.
One important thing which makes DAO special is that it operates through a smart contract.
What Are Smart Contracts?
Under traditional organizations, we have stakeholders who manage rules and changes required whereas under DAO there will be no central authority, only the public will control this organization and it will be completely decentralized.
The Smart Contract will manage every change and will also maintain the treasury of the organization.
Who Will Manage This Smart Contract?
The smart contract will be managed by the public who are the token holder of that organization. For any further changes in the contract, any rule changing for passing any proposal or denying any proposal, everything will be managed by token holders.
If we look into any traditional organization, power is in the hands of the co-founder, board of directors but in DAO power will be in the hand of the community of that organization who are the token holders only.
You can buy tokens of any organization from the decentralized or centralized exchange and participate in changes you want to make in that protocol or organization, along with being able to easily propose those ideas and views and the whole community of token holders can vote on that for confirmation of an idea.
You can buy tokens of any organization from the decentralized or centralized exchange and participate in changes you want to make in that protocol or organization, along with being able to easily propose those ideas and views and the whole community of token holders can vote on that for confirmation of an idea.
Shareholders have voting rights just like in a regular corporation. To sum up, there is a smart contract and for managing it there are token holders who can be from any part of the world.
Right now we have two crypto coins Ethereum classic and Ethereum. The reason for the split into these two different coins was also DAO.
Some DAO projects are The DAO, Maker DAO, Gitcoin, Aragon, Dash, Etherinc. These are the projects which offer infrastructure for creating DAO and its opensource.
Some DAO projects are The DAO, Maker DAO, Gitcoin, Aragon, Dash, Etherinc. These are the projects which offer infrastructure for creating DAO and its opensource.
Now, How Does DAO Works?
Smart Contract: When we talk about partnership firms, LLPs, or Pvt. ltd there are agreements under the registrar for trust setting factor between the community of the organization but within the smart contract there is a code. It is not physical but virtual and when it gets deployed on the blockchain then there cannot be any manipulation.
Funding in DAO: After the smart contract, there is a governance token for example if it’s a commercial DAO, as much as the capital they will put in, a token proportionate to that will be allotted to them and if it is NGO or NTO which is for public welfare, everyone will be allotted with single token and the governance token will give the right to vote in the organization.
Advantages and Disadvantages of DAO:
Advantages and Disadvantages of DAO:
Advantages-
Trustless Authority: You don’t have to rely on the trust of any person because it is not a centralized authority and the involvement of people doesn’t matter in it i.e it is managed by the public.
No Sudden Breakdown: These organizations can’t be shut down because of their decentralization which can be possible in traditional organizations.
Open Code: In DAO there is an open-source code on which the whole organization works anyone from any place can read their protocol and share the idea on the DAO window.
Disadvantages-
Not completely decentralized: In this field, tokens are highly valuable, and majorly large VCs hold a great number of tokens. For the requirement of increasing their initial fund, organizations sell their tokens to VCs and the public then has to buy them at higher rates, which can lead to fewer tokens and fewer voting rights.
Can be easily attacked: DAO is a code that works as an open-source anyone can read it, hacking too remains a risk along with the crashing of the web.
smart contracts too can be hacked by re-engineering it just like it happened with THE DAO in 2016.
No secrets: There will be no secrete regarding any coming change or ideas so there will no secret in the research and development of any business.
Written by: Naman Chawla
Edited by: Priyanshi Deolal
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