Taking A Quick Dip into DAOs (Jan 12th 2022)
For our fourth meeting, we wanted to get prepared for this: Radical Friends. DAO Summit for Decentralization of Power and Resources in the Artworld.
On January 22nd, Goethe-Institut London and Furtherfield will organize an 8-hour long online discussion to explore how traditional organizational patterns can be transformed through decentralized autonomous organizations (DAOs) enabled by blockchain technology.
To start our discussion, we wondered if DAOs are even decentralized? Autonomous? And organizations?
What exactly are DAOs?
Imagine having to work with folks from all over the world without them actually flying over to your place. Now, imagine them to be a digital-based network business that its members jointly own and govern. They have built-in purses that no one can access without the collective’s agreement. Proposals and voting guide decisions to guarantee that everyone in the company has a voice. There is no CEO who may sanction expenditure based on their own whims, and there is no risk of a shady CFO tampering with the accounts.
In the most simplest terms, DAOs are like a digital cooperative. Think cooperative and now digitized the entire process of how cooperatives work.
Are DAOs any different from the traditional organization?
Firstly, the essential thing to note is the DAO is always often in no positions and they are always democratically paced. While the traditional organization is often hierarchical. This is why you have different positions of promotions.
Another difference is that in DAO you don’t need the use of a trusted third — party, because votes are counted and the decision is executed seamlessly. While in the traditional system, even if voting is permitted, votes are counted privately, and the results of the vote must be handled manually. Also, while DAO handles all its actions publicly and transparently, traditional organizations’ actions are limited and private.
It is important to note that DAOs nature is to foster communal development, hence being a community.
DAO as a way to build communities
Having understood what DAOs mean, in the discussion, I would want you to visualize DAO as a community that is packed with the aim of scaling faster than the existing organization as well as providing more visibility. Hence, we can view DAO as a community with a common purpose.
Therefore, DAO can be said to be a new experimental system that has been seen in some specific community sphere and an example of this is the Gender DAO. This is a community of Trans and non-binary NFT artists.
However, from the legal point of view, DAO can be seen as a potential future alternative business structure for the United States. That is, it gives an experimental way of sharing governance beyond the already established centralized system. For instance, a distinguished sect of people that holds a highly centralized power such as the Board of Directors in the traditional sphere.
So, the DAO legal perspective is seen from the coming together of different individuals. These people created the DAO and fashioned out the legal pact in seeing how it can be accessible to everyone.
From the technological perspective of DAO, we need to understand smart contracts technology.
Let’s Talk Smart Contracts?
A smart contract is a self-executing deal in which the conditions of the buyer-seller agreement are directly encoded into lines of code.
The code and the agreements contained within it are dispersed and decentralized over a blockchain network. Transactions are trackable and irreversible, and the code controls the execution.
Smart contracts allow trustworthy transactions and agreements to be carried out between disparate, anonymous individuals. That’s without the requirement for a centralized authority, legal system, or external enforcement mechanism.
Smart Contracts and DAOs
In DAOs, the smart contract serves as its basis. The contract outlines the standards and requirements and operates as the group’s treasury. Only a vote may change the rules after the contract is live on.
If someone tries to accomplish something that is not covered by the rules and logic of the code, it will be rejected. This is because the treasury is also formed by the smart contract, no one may use the money without the consent of the organization.
As a consequence, DAOs don’t really require centralized authority. Rather, the group makes collective decisions, and payments are automatically permitted when votes are approved.
Now back to the question introduced at the beginning of this article, are DAOs really decentralized?
Note that the decentralized nature of DAOs does not negate the existence of some specific persons appointed in formulating the guides of the system for the other group of persons in the DAO’s Blockchain. This is why it is advisable to always read the white paper of any DAO that you are looking forward to joining.
Now, we can call it a system of centralization in the decentralized space, perhaps a Union of organizing and decentralizing.
However, while DAO is concerned about a decentralization system, an essential thing to take into cognition is the way the DAO opts to operate. While the DAO is notable for its decentralized system, it is essential as noted earlier, that there’s an insider centralized system in it. However, this can be seen as a benefit to the community in order to prevent any malicious decisions that can affect the community vision.
The Bottom Line
DAOs is what makes the governance of Blockchains decentralized, which means they are not controlled by a single central authority, such as the government. That is exactly what a DAO brings to organizations or businesses.
A DAO is a non-traditional company run by a group of people who make their own rules and make decisions based on smart contracts on a blockchain. All of its rules and transactions are recorded on the blockchain, eliminating the need for a central entity. A DAO, in essence, functions like a corporation without an executive board — a company that can perform independently and without leadership. Its primary role is to connect together a community of people who share similar interests in order to work toward a shared goal.
In brief, the community handles the organization’s operations, and decisions are made from the base up.