What Is A “DAO”? How Do They Benefit Consumers?
This story was first published on the @BlockChannel Medium account on 3/21/2016
Welcome to our “BlockChannel University” series — where we pick a topic that is currently trending in the Bitcoin/Ethereum/Blockchain industry, and educate you on the ins and out. Stay ahead of what the world creates!
What is a DAO? How Can It Benefit Consumers (Me)?
“DAO”, is a powerful three letter acronym that stands for, “Decentralized Autonomous Organization”. If you’ve been delving into the specifics behind “Ethereum” (Ethereum.org), then chances are you’ve come across this acronym, a lot. It’s an aspect of decentralization and autonomy that has futurists and tech enthusiasts salivating at the mouth; with ingredients that bring blockchain-based technologies another step closer to “disruption”.
Now that the basic definition is out of the way, I know what you’re thinking (why else would you be reading this?). “What does a DAO do?”; “Why is it important?”; and most importantly, “How does it benefit me, an everyday consumer?”
Great questions! Glad you asked them! Now, let’s tackle these three questions, together. Also, let me preface something very important of note before I begin.
Although the idea of “DAOs” isn’t a new one, the capability and feasibility of them existing in real world applications, is a relatively nascent advent (some are working creating some of the first DAOs ever, like Slock.It) . This means there is a lot of available room for scrutiny. Mostly because not many real-world examples exist, yet — so the right and wrong way to define them and how they should self-govern, function, and comply with existing regulatory frameworks, is vague…
Baby steps. We’ll get there. Major technological shifts take time to “stew” effectively. Until then, let’s explore those questions that were posed earlier, shall we?
What a DAO Is
Aside from its literal meaning (Decentralized Autonomous Organization), a DAO, frankly, can be a lot of things. But, in this context we’re defining a DAO as:
“An organization that runs autonomously, in a decentralized manner, that functions without the need for centralized parties to make decisions for the organization to grow, to be profitable, or *physically* exist.”
Essentially, it’s a non-human specific entity, who’s sole duty is to abide by a specific programmatic set of rules; or by the rules granted to it by decentralized consensus (majority decides what to do in a distributed manner).
First off, the main purpose — and one of the large reasons DAOs exists, is to emulate many of the functions of corporate business entities, but without the “inefficient” bureaucracies and red-tape that also come with running a large corporate organization.
That is to say, companies that, once started, can run themselves indefinitely, without the need for intermediaries to boss folks around.
Nifty? Eh? Got that part down? Good. So, to recap quickly:
DAOs aren’t one specific person, or persons. They govern themselves in a decentralized manner based on consensus or a preprogrammed set of rules. And, they have to be able to do all of this, without a single, sole individual stepping in to make business/logistical decisions.
Sounds all futuristic and dreamy, right? Now let’s move on to the good stuff. Like, why in the world you should even care they exist, or rather, beginning to exist?
Why are DAOs important?
Let’s break this down. In order to fully grasp the power of a DAO, we’ll start with the present day, ending with what a venture run on a DAO can do in the future.
Presently, in the great and wondrous Silicon Valley, there exists a current ethos when it comes to startup’s and business.
It goes a little something like this:
- Have an awesome ground-breaking idea.
- Share that vision with a group of like-minded peers; get people invested in your idea mentally.
- Build your product, make it great, make your case to a VC, raise some money.
- Take that money, hire some folks. Smart folks. Double down. Iterate. Create value, deliver that value to stakeholders (VCs, investors). Share prices go up.
- Reinvest new $ from venture to improve business and reward the investors who got in early.
- Sell, merge, or go public; makes lots more money, rinse hands repeat.
Oh man, what fun! Take your original idea, whore it out accordingly, let investors water your idea down for the “bottom-line”; then ride it out to payday. In this current model, those that stand to be rewarded the most are developers, and the investors; a lot more so than the end users. Sounds slightly pessimistic, I know. But bare with me, I’ll explain why.
I don’t know about you. But, that current capitalistic model doesn’t bode too well with me. Not because VCs or investors or greedy, or that creating a business is bad. But — at some point your core vision can be tainted by all the red-tape you have to cut through to make your vision a reality.
Well, wait. Not anymore. We’re standing at the precipice of a new age. With the influx of “crowdfunding” platforms like KickStarter and GoFundMe; the idea of social crowdfunding is an idea is becoming a norm (especially with the U.S. loosening regulations around crowdfunding).
But, there’s still many barriers for early “crowdfunding” investors to obtain actual equity when they fund that next great KickStarter idea. Equity and a right to have a voice in new and exciting products is half the fun of being a VC. With DAOs, anyone can be a VC and have a say in an organizations overall direction.
How can a DAO benefit me, the consumer?
Now, let’s say I’m a consumer who is a user of the Ethereum network, and I want to get a piece of this sweet, sweet DAO action. How do we do that?
Ethereum introduces a very novel and amazing capability. One that is very simple and elegant. With “Ether”, the underlying token of Ethereum, you can do your own crowdsale, or IPO, and get your idea off the ground in less time and hassle — with 100% more freedom. Once created, your DAO — as well as any rules you impart upon it via your smart contract — will be fully secured and protected by the Ethereum network. If you want to learn more about how to create your own unique token and start your very own crowdsale, check out this page, here.
When an individual or a business participates in a DAO “crowdsale”, they can essentially use their Ether to purchase proportionate “shares” of a particular decentralized business entity. Remember “Slock.It” that I mentioned earlier? They’re one of the first to give this unique model of funding large attention, and will be offering their own unique token crowdsale soon. Another great company seeking a similar vision is Arcade City (decentralized ride-sharing platform using Ethereum), who recently laid their plans for a DAO out here.
If you are a holder of a particular DAO’s crowdsale token’s, congratulations you’re an investor! By obtaining a token in a DAO you now have the power to (based on the predetermined rules created prior to the crowdsale) influence every aspect of the service/company.
Here are some of the unique decisions you can participate in as a holder of a DAO token:
- Voting on outside expenditures that the company makes (I.E. who to partner with, who to pay money to outside the organization).
- What products will be on the organization’s roadmap.
- What employees can be hired to create the products in said roadmap.
- How profits will be distributed amongst DAO token holders.
DAOs can empower a large array of various business models that previously were impossible to create. This leads to the possibility of all sorts of autonomously structured and run organizations; which include but aren’t limited to: distributed venture capital firms, decentralized hedge funds, decentralized governments, decentralized public utilities — and basically any decentralized entity your imagination can create.
Here are some ways that DAOs directly benefit consumers:
- Ability to invest freely into the various DAOs that we deem most useful to us.
- Complete ownership of the investments that you take part in; entities are held programmatically liable for any creations that derive from a DAO crowdsale, increasing the odds of a return for consumers (no more cancelled KickStarters that just, “couldn’t make it happen”.
- Allows individuals all over the world equal playing ground when deciding what businesses/organizations to invest in.
- Complete transparency means that consumers investments are less at risk, and individuals can be more informed of the strategic business decisions as they’re made in real-time.
- Ability to trade and sell your unique DAO tokens to others peer-to-peer without the need for complex technical/financial knowledge.
- DAO investors can take part in a project from inception, to exit — all without ever having to go thru complex regulatory hurdles, or fill out complicated paperwork.
The “templates” or in other words, the “smart contracts” that enable these sorts of DAOs are all programmed by individuals like you and I.
Once we’ve a few running the wild, and have our hands on their source code — anyone can mimic and create similar/identical organization structures as simply as “copying and pasting” the source code and editing it as needed.
Hopefully this thorough and simple explanation was enough to pique your interest. If you’re interested in learning more about Ethereum, visit http://BlockChannel.com to learn more, and how you can purchase Ether to get started.