DAO, The Most Decentralized Form?

Is DAO the most decentralized form?

One of the main features of digital currencies is that they are decentralized. This means a single body cannot control them. Such as a government or central bank, but are instead distributed among different computers, networks, and nodes. In many cases, virtual currencies take advantage of this decentralized state to achieve a level of privacy and security. That is usually not available to standard currencies and their transactions.

Definition

A Decentralized Autonomous Organization, or DAO, is a blockchain-based form of organization or company, often governed by a native crypto-token. Anyone who buys and holds these tokens gets the ability to vote on important matters directly related to the DAO. They typically use smart contracts instead of traditional corporate structures to coordinate the efforts and resources of many people toward common goals. These are self-starting computer programs performing a certain function when certain conditions are meeting.

The second largest crypto

Ethereum is the second largest cryptocurrency by market capitalisation and is the largest platform to use cryptocurrency technology – blockchain – for non-money applications. The idea is that if Bitcoin can remove the middlemen in online payments, can the same or comparable technology do the same for middlemen.

Many consider the DAO to be one of the noblest ideas to come out of Ethereum. However, many argue that implementing the idea in the real world is unlikely to lead to wise decision making.

But others think the idea of ​​an organization with decentralized control is promising and are experimenting to bring it to life. The first such experiment, aptly named “The DAO”, was created in 2016 and ended in a $50 million failure due to a technical vulnerability. However, organizations like Aragon, Colony, MakerDAO and others are picking up where The DAO left off.

Functioning

DAOs rely heavily on smart contracts. These logically encoded agreements dictate decision-making based on the underlying activity on the blockchain. For example, based on the outcome of the decision, certain code implementation can be done to increase supply circulation, burn a selected amount of reserve tokens, or issue selected rewards to existing token holders.

The voting process for the DAO is getting publish on the blockchain. Users often have to choose between mutually exclusive options. Voting power is often distributed among users based on the number of tokens they hold. For example, one user who owns 100 DAO tokens will have twice the voting power weight of a user who owns 50 tokens.

The theory behind this practice is that users who are more financially investing in the DAO are getting motivation to act in good faith. Imagine a user who owns 25% of the total voting power. This user may engage in wrongdoing; however, by doing so, the user will jeopardize the value of his 25% share.

DAOs often have treasuries that hold tokens that can be issued in exchange for fiat. DAO members can vote on how to use these funds. For example, some DAOs intent on acquiring rare NFTs may vote on whether to give up government funds in exchange for assets.

Ethereum the perfect foundation

Ethereum is the perfect foundation for DAOs for several reasons:

1. Ethereum’s own consensus is sufficiently distributing and establishing for organizations to trust the network.
2. Smart contract code modification cannot be done after activating, not even by its owners. This allows the DAO to run according to the rules it programming with.
3. Smart contracts can send/receive funds. Without this, you would need a trusted intermediary to manage the group funds.
4. The Ethereum community has proven to be more collaborative than competitive, allowing best practices and support systems to emerge quickly.