In the most recent episode of Cryptopedia, viewers have the opportunity to gain a concise and enlightening understanding of decentralized autonomous organizations, also known as DAOs. According to Jackson DuMont from Cointelegraph, DAOs possess the potential to “completely revolutionize the way work and social collaboration are structured.”
So, what sets this type of organization apart as both decentralized and autonomous? The answer lies in the implementation of smart contracts on the blockchain. Essentially, a DAO operates based on computer code written into smart contracts, which can be interacted with by anyone in the same manner.
DuMont outlined the three critical steps required to establish a DAO. The first step involves creating the smart contract, followed by determining the means of obtaining funding and implementing governance, typically accomplished by issuing a token. Finally, the DAO is deployed on the blockchain.
One of the most prevalent use cases for a DAO is crowdfunding. The pooled funds are placed into a smart contract that, in turn, distributes tokens to DAO members. Tokenholders, who hold equity in the DAO, can then vote on how the funds should be spent and choose delegates.
For instance, ConstitutionDAO raised a little over $49 million from its members in an attempt to purchase an original copy of the U.S. Constitution at an auction but was ultimately outbid. Another example is Blockbuster DAO, which aims to raise sufficient funds to acquire the video rental brand from Dish Network and transform it into a streaming film studio.
DAOs aim to mitigate the risks associated with poor leadership through a concept known as horizontal leadership or flat hierarchies, which equalize the distribution of power. The scope of influence is limitless, and regardless of where a member is located, the same rules of the smart contract apply to everyone. Trust is placed in the code rather than individuals.
Naturally, there are still concerns and risks regarding legality and security. One notable example of a DAO gone awry is The DAO, which was hacked for $50 million in 2016. A recent report claims to have uncovered the identity of the alleged hacker.