Decentralized Autonomous Organizations and Their Impact On Our World
A market economy is a complicated system, which main principles have been formed about two centuries ago. Since then, market economy underwent major changes considering the involved parties, goals, potentials for the growth, yet, the basic concept of it hasn’t evolved at all.
Everything changed when blockchain technology was invented. The main idea of a market transformed, which meant that new possibilitiesemerged — possibilities to create more secure, transparent, reliable systems, which will practically demolish the middlemen class between manufacturer and consumer. Since the creation of the blockchain, its impact on the market grew exponentially, and specialists predict even more impressive statistics by the year 2021. But let’s talk about the practical inculcation of the technology and the forms it has taken under the prevailing users’ demands.
Future of infrastructure and a new global society
When talking about DAO — Decentralized Autonomous Organization — many info sources often use a metaphor of a self-contained mechanism (a car or a vending machine), which performs multiple functions according to the prescriptions shut into a program or a code. That’s not a very accurate comparison. The DAO’s main feature and at the same time first distinction is the possession of internal capital, around which the system is built. Obviously, neither a car nor a vending machine manages similarly complicated functions as DAOs do.
DAO is a system built upon the smart contract protocols. To understand how it works you have to realize how any agreement is established. When two parties — the buyer and the seller, for example — want to exchange money for goods, they come to the middleman — notary — who will control the execution of the reconciled actions by those two sides. As soon as the buyer provides the amount of money, which is equal to the price of the goods, the seller is obliged to give those goods to the buyer. If the buyer/the seller doesn’t carry out his part of the agreement, the middleman has to decide the subsequent actions — whether to turn money back to the buyer, or give him a partial refund, or to dissolve an agreement, or do any other needed action.
Overview of a DAO
Smart contracts made possible the removal of middleman as a carrier of an additional human factor and a source of extra expenses. Thanks to a few lines of the code, two or more parties can rely on a nearly impeccable program, which makes no mistakes, can’t be changed after its launching, requires no paperwork, contract conclusions, money, or maintenance. Such a system can be applied everywhere — from medicine and private sector up to the macroeconomic relationships — and, actually, it successfully does.
DAO: features & principles
Decentralized Autonomous Organizations consists of numerous investors, who gain their status by purchasing a stake in a project. There is neither a formal leader nor a ruling group in DAOs — every participant receives an impact on the future of the organization in proportion to the amount of money he invested into it. Often DAO has its own currency — tokens — by which the investors’ money is formally exchanged. The investor chooses where to put his interest by disposing his tokens into the start-ups he considered the most flourishing.
The total amount of money collected from the investors is unreachable for any particular person to prevent possible stealing. What will be done with the money depends only on the decision of the majority, which is often determined through voting. The applied “democracy” principle makes possible to act like the biggest part of the investors wish to, filtering the questionable projects from the promising ones and contradistinguishing the opinion of the single person to the opinion of the majority.
Such an approach, despite criticism, has shown great effectiveness: where one person will see a fantastic profit, the other will “smell a rat”. Group analysis guarantees that any suspicious (unclear, half-assed) part of the start-up will be noticed and considered, and the final decision will be maximally prudent.
Each member of a DAO can propose some interesting project for other participants to contemplate. This possibility makes the system self-expanding — more engaged members mean more projects, more projects mean more profit, and more profit leads to the increase of those who wish to participate in a DAO! Simple math.
As we already know, every DAO is based on a smart contract — a code, which is fully transparent for anyone who wants to get acquainted with it by himself. Yet, when launched, it can’t be directly stopped, changed or transformed not in the slightest degree. All basic instructions and functions of DAO are impounded into code by its creator. When the profit from the investment is received, it is distributed according to the instructions the program possesses.
Such a scheme makes DAOs “fully transparent, immutable and incorruptible”. Unlike traditional organizations, DAOs have no ruling coterie. The profit of the investors relies solely upon their farsightedness and is distributed according to their contribution to the common goal.
Structure of a DAO
What DAO implementing can bring to the modern world?
While the technical domination of DAO over old-fashioned ways of infrastructure and communications is almost indisputable (we’ll return to this topic later), the other aspect of this question encounters some obstacles. We’re talking about the absence of hierarchy — the system, where only you are responsible for your final income and there’s no one who can tell you what to do with your money.
If you have some experience of working in a big company, you’ve surely felt how unfavorable your personal initiative is in such organizations. After years of obeying and having your opinion oppressed, your critical thinking will atrophy beyond recognition.
On the contrary, when being a part of DAO, there’s no way you’re not interested in your work’s results: you have to “evaluate your decisions and not waste time on ineffective solutions”. The responsibility for your welfare is entirely in your holdfast, which makes you analyze the potential of each decision beforehand.
No hierarchy also means no inequality — every participant of the project is essential to its prosperity and has an impact on each and every aspect of the DAO’s work. Your influence depends only upon the amount of money you’ve put into the project, which is a much more fair approach than the out-dated system of distribution of power.
Another amazing feature of any DAO is anonymity. Thanks to the technology of blockchain, the stakeholder doesn’t have to approve his personality in order to become an investor. It’s a key element for the people who appreciate their right to have a private life, away from the government control (and also fees and taxes, but shh!).
All in all, by implementing decentralized autonomous organizations instead of the traditional ones, our world will only win because of the emerged interest of the society to the political, business, economic processes in the country, as soon as those have a direct influence on the investors’ earnings. Another bright side of such concept is an increase in critically thinking masses — even the sideways effect of DAO on our world is positive. What should be said about the direct one?
DAO’s technological aspect: pros and cons
We have mentioned before that once launched, the code which rules our imaginary decentralized autonomous organization can’t be changed or stopped. This is the consequence of the smart contract technology, which was made to guarantee no extraneous interference in the digital agreement. And this side of DAO’s mode of operation is probably the most controversial one.
DAOs Main Advantage and Greatest Weakness
From one point of view, such a feature is the best warranty of the reliability of the system — it works as a clockwork as it was preplanned to. Moreover, each stakeholder knows its basic ideas because of the code’s accessibility: if you are familiar with the programming language it was written on, you realize organization’s operation principles — the code is an actual instruction to the system’s maintenance.
Have we already said that DAO abbreviation has a word “autonomic” in it? This actually means that no one — neither director nor employees — are needed for its unerring work.
But from the other point, we have an example of “The DAO” company — the most successful crowdfunding project in history, which fell just as fast as it had arisen because of a loophole in a code. Its investors watched helplessly on how their money was drained by the hackers, and there was no way to close the vulnerability because of the smart contract’s impenetrable technology.
It’s sad enough that the main advantage of the DAO is its greatest weakness.
However, programmers all around the world are day by day approaching to a perfect code — the one, which won’t have any vulnerabilities and will propel DAOs to the next level of ideality. And we’re sure that soon enough such code will become a base for the DAO, which will change our world cardinally. But now let’s hope for the best and invest in what promises such glittering future in no time!
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