A Beginner’s Guide to Decentralized autonomous organizations (DAO) :

\>What is DAO?

Decentralized Autonomous Organization(DAO) is,

A type of organization where the management and all the basic repetitive tasks are automatically executed, by embedding codes related to those tasks and management conditions on the smart contract (if you don’t know about smart contracts check this out) on the blockchain. And, it is not governed by any centralized body or a third-party organization.

In DAO, Usually stakeholders (those people who have tokens of DAO) can vote to have the smart contract do different things and also propose some changes that are needed to be made (e.g. if this is an investment organization, they can vote on which projects the smart contract should fund)

\>Why was DAO created?

To understand this let us assume you are a part of a management team in a MNC and you came up with a profitable idea for your company and employees before its implementation you need to pitch your idea to higher authorities where they don’t approve of your idea, that too without any explanation.

Now, here you are introduced to DAO which is collectively owned and controlled by its members where all the decision-making will be done with the help of a voting system to decide upon any action, and here every task is fully automated.

So, To conclude we know it’s hard to trust someone you’ve only ever interacted with on the internet, or working with someone that involves funding and money requires a lot of trust. But. With DAOs you don’t need to trust anyone else in the group, just the DAO’s code, which is 100% transparent and verifiable by anyone.

Further comparing DAO to a traditional organization you can see below…

\>How does DAO work?

Dao exclusively works on the smart contracts that may or may not be interconnected to each other where protocols for a certain organization is set in the form of a code and will hold the group’s treasury, which are further stored in the blocks of the blockchain.

If anyone tries to do something against the protocols set in a smart contract, tasks will not get executed as the logic of the code fails. And as smart contracts hold the group’s treasury so no one can spend the money without the member’s approval.

To cast a vote if you are a member of that DAO and holding tokens of that particular DAO, you will be able to cast your votes for the further implementation of the changes in that DAO.

You can also propose changes for the organization if you are the token holder so that other token holders will vote on the proposal to agree on the changes that will benefit the organization. ( token holders can be from anywhere USA, India, Australia, China, etc . )

\>Benefits of DAO

-The biggest benefit of the DAO is that it is trustless which means you don’t need to trust any CEO, Manager, Board of Director, etc. regarding the decision-making skills, the whole organization, and the smart contract will continue no matter if a major developer stop working on the project or even if the funding goes away.

-It cannot be shut down. Like in a traditional organization it can be shut down by the FBI , CIA, or any high authority but in DAO any authority cannot skip the line, they can shut down only when they have a large number of tokens of that organization and submitted a proposal to be voted on and went to the process fairly only then it could be shut down.

-It is open source which means its code is out there for anyone to look at and improve upon so these are more reliable.

\>Downsides of DAO

-They are vulnerable to attack since anyone could look at the code, which means attackers can also look at it, and if these attackers know intimately how the code works they can then reverse engineer the attacks and find a bug, if this happens then DAO could be attacked.

-There’s no business secrets since the code is all open source and so anyone can look at how the DAO is set up. Example- Sushiswap vampire attack on Uniswap.

-It is not decentralized enough as a major token are held by major VCs (which you can see below in the image) of the organization as voting power comes through tokens so definitely as the public will be holding fewer tokens compared to VCs this will be kinda centralized structure in a way.

\>Some Examples of DAO

-MakerDAO

-Aragon

-MetaCartel

-Gitcoin

-DASH

-The DAO (about which I’ll cover in the next article)

\>Conclusion

DAO is an organization whose backbone is a smart contract that contains code to run the set of rules and automated tasks and also contain a treasury of that organization to utilize whenever needed through smart contracts, changes and tasks here are implemented by casting vote that can be done only by the token holders of that organization.

Would you like to know about how DAOs are created and how you can be part of a DAO? Do comment down if so…