What is a DAO?

DAO is seen as the future of organizations.

A platform like Youtube is currently controlled by management but it could easily operate decentrally. The videos, ads, payments and controls could all be taken care of automatically and it would get an innovation boost when everyone is allowed to suggest his/her ideas. A company where the operation works like this is called a DAO, and we're going to be dealing with a lot of them in the near future. In this article we dive deeper into what a DAO is.

What is a DAO?

DAO stands for Decentralized Autonomous Organization and is a company that operates independently, without staff and in the blockchain. The entire operation is written out in programming code and through smart contracts the company knows exactly what to do. You can compare such a contract to a computer program that gives your computer the correct work instructions.

The idea came about right after the advent of Bitcoin. They thought, if money can be decentralized, why couldn't this also work for organizations? The advent of Ethereum and its smart contracts has ensured that this is now possible. If we don't need staff for a business, what could we use well?

DAO Requirements

  • A list of programmed rules by which the organization knows how to operate. These codes are included in a smart contract.
  • Tokens that the organization can issue and use to reward it for certain activities.
  • Investors who want to buy the tokens and thus have a say in the fortunes of the organization. They can influence the way the organization operates and steer it towards success.

Benefits of a DAO

DAO's take a number of noteworthy advantages that are listed in the three points below:

  • The processes are organized more efficiently and this allows people to focus on tasks that really matter instead of completing the everyday routine tasks. 
  • There is no hierarchical structure in the organization. Everyone can come up with innovative ideas, allowing the company to grow and remain innovative. To prevent spam, it is often set that you have to pay a small fee to come up with an idea. 

DAOs are completely transparent. All transactions are made transparent to everyone via the blockchain.

Disadvantages DAO

As with ever great innovation it’s not just all advantages, let’s also look at potential downside of  a DAO:

  • The programming code cannot be changed just like that. Everyone must agree to its change and if this does not happen then no modification can take place. 

This problem is what Ethereum's project, "The DAO," has experienced. This project was supposed to make it possible to run a decentralized investment company and at first it looked like it was going to succeed. However, there was someone who found a leak in the programming code and saw the possibility of having his investment paid out multiple times. In this way, he managed to siphon off millions of dollars. Ultimately, this incident was the impetus for the fork of Ethereum. That is the reason we now have Ethereum and Ethereum Classic. 

  • Every organization has to follow certain legal rules and since the laws are not yet up to date regarding blockchain and cryptocurrencies, DAOs can expect a lot of obstacles at the beginning. Over time, this will decrease as society becomes more accustomed to these types of businesses.

Investing in a DAO

You can easily invest money in a Decentralized Autonomous Organization. This is because each DAO has its own token and you can easily purchase these with Bitcoin or Ethereum during the ICO. The more tokens you buy, the more control you often have over the organization's price.

Here in Brickken, we are building dApp, that will serve as a structure for DAOs to operate. Stay tuned!

Published On: May 4, 2022Categories: Legal0 Comments

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