DAO ( Decentralized Autonomous Organizations) Pt 1

If you look into it, you can get an idea from the name what DAO actually is. As it stands for Decentralized Autonomous Organization, you can have a sense that we are talking about an autonomous organization, which is decentralized just like cryptocurrency and blockchain technology.

This is exactly how we define DAO, and it is kind of self-explanatory from its name. The idea was on the market ever since the first cryptocurrency was launched back in 2009. In an effort to help Bitcoin get rid of intermediaries in financial transactions, the DAO emerged as the best possible solution.

Decentralized Autonomous Organization (DAO) is actually an organization that can run on its own without having any hierarchical management. It operates based on the pre-defined code which is why we call it a type of smart contract.

The above is a simple definition of DAO, but let’s define DAO in more technical terms.

“DAO is a form of contract in which the processes and laws of a decentralized organization are inserted as a permanent code of the smart contract, and operates through a distributed consensus protocols.”

Let’s understand DAO with an easy to understand example.

Have you ever used Uber? The chances are, most of you have.

Now consider that the Uber is DAO. In that case, the car will be driverless that searches for the passengers on its own. It picks up a passenger on its own and drops a passenger on it own. In addition, it gets payment on its own, gets fuel on its own and pays for the fuel on its own from the profits. Simply put, the car, if it is acting like a DAO, will not need any external help to perform its tasks.

Same is the case with Decentralized Autonomous Organizations. They don’t need any management to run them, they operate on pre-defined code and directions, and are decentralize with no central authority to control them.

Any organization that satisfies the above condition is a DAO.

To further define DAO in detail, let’s look into how it works.

The first ever DAO is Bitcoin. It was also the first ever fully-functional Decentralized Autonomous Organization. The same concept was followed by other cryptocurrencies like Ethereum, as it was enabled on the Ethereum platform.

This was the first time the DOA was used by another organization other than Bitcoin. It also helped others also interested in the concept, and helped shaped its current look.

Now, how does a DAO work?

Define Rules
You need to start with the set of rules first. What are the rules you want to define under which you want a particular organization work? You need to brainstorm all the rules as you need to add all these rules to the smart contract.

Smart Contract
All the rules are then coded into a smart contract, which is essentially a computer program. It autonomously exists on the internet and requires people to do tasks that it can’t do on its own.

Funding Phase
When you are done with setting up the rules and creating a smart contract, next is the funding phase. It is one of the most important steps in the process for two reasons.

First, all DAOs need tokens, which are essentially an internal property of a particular DAO. These tokens are used by the organization to reward activities within it.

Second, when the user invests into the DAO through the funding process, they actually buy voting rights. So the more someone spends on the DAO, the more influence he can have on the way it operates.

Deployment
After setting up rules, creating a smart contract, and the funding process, the next step is deployment. Immediately after the deployment of a DAO, it becomes independent of its creator and goes on fully autonomous mode.

All DAOs are open source, which means, after deployment anyone can see the code behind the DAO. All the financial transactions and rules are recorded using blockchain technology.

As an Ethereum blockchain records all the financial transactions, it makes a DAO fully transparent and incorruptible.

You also need to understand that DAO also has some limitations. For example, it can’t write a code on its own, develop hardware or build a product. This is where contractors come in, as to achieve these tasks, DAO hires contracts based on the voting process.