DAO…What?
A decentralized autonomous organization, or DAO (pronounced “Dow”), is a consortium of common-interest enthusiasts built on a blockchain. The increased popularity of DAOs is largely due to their unique structure being in stark contrast to traditional corporate governance formations. A DAO is solely controlled by its members, from the bottom-up, rather than a board of directors, from the top-down. DAOs are fully transparent, independent and democratic. As such, they have become an attractive option for establishing charities, startups and many other kinds of associations.
How Does a DAO Operate?
A DAO operates on a blockchain, a series of individual sets of data (known as “blocks”) that are linked together. The blockchain also records an historical record of provenance of any and every change made by the DAO members. All of the activities that a DAO conducts are recorded on the blockchain, which is visible to all members.
Financial records, contributions, proposals, documentation and organization rules are recorded on the DAO’s blockchain. Members vote on proposals, finances, asset allocations and even the programming code of the DAO itself.
What Advantages Does a DAO Have?
DAOs have several advantages over traditional organization structures:
Fraud protection –– Defrauding a DAO would require manipulating the DAO’s blockchain code in full view of all members. The transparent nature of a blockchain, compared to traditional database security measures, makes hacking extremely difficult.
Security –– Every dollar spent and received can be traced historically on the blockchain to each individual’s crypto wallet address. The DAO’s provides a safe channel for members to contribute while drastically minimizing any financial chicanery.
Trustless –– A “trusted third party” is not needed to govern and protect the organization. The DAO’s blockchain itself enforces governance as the DAO cannot operate in any way other than how the blockchain is programmed to operate.
How Can I Join A DAO?
To join, you must purchase tokens with the DAO’s associated cryptocurrency; in exchange, you will receive membership and corresponding voting power. The more tokens you purchase, the more voting power you will have on each proposal. There are numerous DAOs to choose from, each having its own project, goal or cause.
DAOs have a lot of advantages over organizations with traditional structures, especially with security measures and members’ voting power. While they still are maturing toward their full potential, especially in their legal applications, they are nonetheless a powerful alternative to hierarchical formations. With so many established DAOs operating today, you’re sure to find a common cause you’d like to support.
