Decentralized Autonomous Organizations

Ask any Business major over the course of the last few decades what the most common organization types are, and they will tell you about the Sole Proprietorship, the Partnership, and the Corporation. Today may be a little premature but if AI and blockchain entrepreneurs have their way, it will soon be time to say move over to these traditional forms of business because there are new kids in town, not the least of which is the Decentralized Autonomous Organization (DAO).

As I write today, I find it interesting to observe the Washington Post’s relatively new slogan is “Democracy Dies in Darkness,” because it reminds me of the light that is brought to decentralized autonomous organizations. And I do mean a lot of light.

A DAO is essentially an automated organization whose policies and bylaws, or governance, are democratically driven by community consensus and often controlled by programmatic structures on a blockchain known as smart contracts. Incidentally, a decentralized application (DApp), on the other hand, is an application that is run by many users on a decentralized network with trustless protocols and typically rewards users with tokens for providing computing power.

The Wikipedia entry for DAO states, “A decentralized autonomous organization (DAO), sometimes labeled a decentralized autonomous corporation (DAC), is an organization that is run through rules encoded as computer programs called smart contracts. A DAO’s financial transaction record and program rules are maintained on a blockchain.”

The Volentix DAO is envisioned to be one such decentralized autonomous organization.

Whereas in traditional forms of business, especially the corporation, management of the organization functions with a top-down, hierarchical approach, and typically includes chief executives, vice-presidents, directors, managers and others, the DAO does — in large part — do away with these and offers a more transparent, fair, and less corruptible way of bringing a product to market and doing business generally. It also reduces the risks associated with having single points of failure and conflicts of interest, which inevitably arise in the corporate environment.

While it is true that the precise legal status of this type of business organization is unclear (New York Times, 2016, May 21), there is no question that an institutional revolution is underway. This fundamental change will not only impact the financial technology sector (Fintech) but will transform many other industries too, including voting, healthcare, photography, public records, music rights, cloud storage and more (TechRadar, 2018, January 16).

Decentralized autonomous vehicles (DAV), decentralized autonomous transportation networks, real estate, ride-hailing, and food delivery have been proposed. Cointelegraph (2018, February 7) provides an interesting example when they ask us to, “Imagine a vending machine that not only takes money from you and gives you a snack in return but also uses that money to automatically reorder the goods. This machine also orders cleaning services and pays its rent all by itself. Moreover, as you put money into that machine, you and its other users have a say in what snacks it will order and how often should it be cleaned. It has no managers; all of those processes were pre-written into code.”

Cointelegraph (2018, February 7) also notes that although a DAO itself is not capable of building a product, writing code, or manufacturing hardware, for example, contractors are hired to perform required tasks. This appointment is done through a community driven voting process while a smart contract ensures payment upon task completion.

Volentix Labs, Semantic Labs, and Pythagoras Systems are the current development partners behind Volentix.

Substantial flexibility, combinations and permutations can be built into a DAO. For example, “when deploying a DAO on the Ethereum blockchain, one can choose the amount of votes a proposal needs before it can be executed, the minimum number of minutes that needs to pass before a proposal can be implemented, and the amount of votes needed to execute a proposal. As such, a DAO administrator can create a system where full consensus is needed for a proposal to pass, or only a 50% majority is required” (The Merkle, 2016, April 3).

How did we get here? Pioneering cryptocurrency Bitcoin, a decentralized and permissionless public ledger, was first introduced in 2009 by Satoshi Nakamoto and can be regarded as the first DAO. However, it was not until 2013 when Vitalik Buterin integrated smart contracts with the Ethereum blockchain that the disruptive nature, potential impact, and implications of future, decentralized autonomous organizations and decentralized applications began to be recognized.

It is easy to become confused, however. DAOs, DApps, and smart contracts are relatively new ideas and there is an evolution of concepts currently taking place. Moreover, there are important criticisms, security and other challenges that DAOs will need to overcome before being adopted by the mainstream as a viable business model.

Over the coming weeks and months, I will revisit each of these topics and help to further shed light on these revolutionary ideas.