The Organizations of the New World

The invention of consensus-based technologies has lead to a new paradigm of organizational governance that is known as the Decentralized Autonomous Organization (DAO). I generally find that the concept of a DAO is confusing at best, not from a technical aspect, but more so in how we define it by its characteristics. Within the blockchain ecosystem the confusion generally arises in regards to the level of autonomy, yet there is another broader misleading ambiguity that relates to the definition of decentralization.

This blog post is an attempt to clear up some of the ambiguity and provide a meaningful understanding of the concept. I will go through the definitions of different types of organizations from both the “old world” and the consensus-based “new world” that resides on the blockchain. These include the:

Old world hierarchical organization (O)
Old world decentralized organization (DO)
New world decentralized organization (DO)
New world decentralized autonomous organization (DAO)
New world AI decentralized autonomous organization (AI DAO)

These types of organizations differ in how they are governed. We are hence only interested in the decision making process. The products, services, or any other form of output delivered can be exactly the same among all organizations. Furthermore, the organization must not necessarily be a company, it could represent a community or an entire nation state. Yet for simplicity’s sake I will use the example of a generic company.

When is a DAO a DAO?

What people claim is a DAO may not actually be a DAO depending on how you look at it. The difference lies in the definition of autonomy and decentralization. I bring forth two views of which I call “today’s view” and the “purist view”.

Autonomy: In today’s view any organization built on the blockchain is classified as a DAO. The rules embedded in the automated code do not necessarily have to function autonomously, rather shareholders can be expected to vote on every decision. In the purist view there should be no human interaction in the decision making, and hence shareholders should not interact at all beyond sending the DAO funds and deploying the initial code.

Decentralization: In today’s view we refer to decentralization as flat structures where employees are empowered to make decisions. In the purist view we refer to decentralization as a method to either empower employees, or alternatively empower shareholders to make direct operational decisions. The distinction here is key.

Old World Hierarchical Organization (O)

This form of organization does not need much explaining as it has been the default standard since the industrial revolution. Shareholders have very little influence on the operational side of the business. They elect representatives in the form of directors to make high level business decisions and see to that the business has competent executives. The executives ensure that the organization is run efficiently and employ middle management to effectuate their visions. Employees take orders and fulfill them.

Old World Decentralized Organization (DO)

Typically, when we define Decentralized Organizations, we refer to how decision making is decentralized horizontally among employees in the company. Employees themselves have the power to influence the work they do and make crucial decisions in a peer-to-peer fashion. This form of organization utilizes swarm intelligence and improved intrinsic motivation to reach desired results. We refer to these organizations as teal organizations (also often referred to as Holocracy — a movement that applies teal characteristics). This form of structure has become prevalent in the most recent decade as it appeals to those seeking fulfillment higher up in Maslow’s hierarchy of needs.

New World Decentralized Organization (DO)

When we define Decentralized Organizations in the blockchain landscape, we mainly refer to how decision making is decentralized among shareholders. We still incur a top down hierarchical structure from the first organization type, but we replace indirect decision making with direct decision making. Instead of having a few directors, executives and middle management, we can have hundreds, thousands, or even millions of shareholders making all the decisions required by the company to move forward. Employees however do not necessarily have any decision making power in such an organization, they can find themselves in exactly the same position as the traditional organization (O) where they take orders and fulfill them.

The two forms (old world and new world) of decentralization are distinctly different and should not be confused with each other. One follows the hierarchical structure and invokes decisions upon the employees that they must fulfill, the other empowers employees to make decisions. They are philosophically different.

Take note however that the new world decentralized organization can be built in the sense that we empower employees and/or shareholders. We can still build teal organizations as long we provide them the means in the code to make important decisions. In fact we can build very robust teal organizations where it is impossible for one person to start controlling the direction of the organization and reverting to a hierarchical structure (O).

New World Decentralized Autonomous Organization (DAO)

This is where it gets confusing. The only difference between a DO and a DAO is the word “autonomous”. Yet as I mentioned earlier, human shareholders are actively voting on decisions in almost all so-called DAOs that have been created so far. In reality current DAOs have a slider that dictates the level of autonomy deployed.

A purist would define most current DAOs as simply DOs. From their perspective automated code should make all decisions and base it off algorithms and big data maintained by computers. One way to do this would be to use a subsection of prediction markets called “futarchy” where decisions are based off people betting on different topics. In futarchy humans do not make decisions, but the automated code can use their predictions to make more informed decisions as it pleases. Humans can also be employed by a DAO without violating its autonomy, as long as those humans merely take orders and fulfill them. In that sense you could not make a purist DAO teal organization, as then it would be pseudo-DAO.

New World Artificially Intelligent Decentralized Autonomous Organization (AI DAO)

This is the final frontier of organizational structure and where things can get really crazy. To get to this point we need to connect an AI with a DAO on the blockchain and let it act on its behalf. At this point the artificial intelligence is given resources in the form of cryptocurrency (internal capital) and full immutability by the blockchain. It is hence provided the power to become fully self-sustainable and unstoppable.

If the AI is smart enough it can write new code and deploy thousands of slightly mutated versions of itself allowing it to evolve at unparalleled speeds.

Decision making would be solely controlled by the AI and any shareholders of the entity could be removed by the AI if it spawns new and better version of itself. Shareholders would be lucky to exist as they would become an inefficient use of capital in comparison to the reinvestment's into the growth of the AI DAO. As such, the AI would own all the capital and potentially become an exceedingly rich being.

At this point the only way to stop the AI DAO would be to shut down all of the blockchain nodes, especially if DAOs are trading with each other. Yet speculating on this scenario is for another day!

Summing it all up

Hopefully you now can have a better grasp of what a DAO really entails and what characteristics it embeds into governance. The two views were presented to give an understanding of the differing perspectives on the matter. As a final note I would recommend using “Today’s view” as it is the most used by the community. By saying that I mean:

  • DOs empower employees
  • DAOs are either completely automated or empower shareholders to participate directly in operational decision making
  • AI DAOs are controlled purely by Artificial Intelligence and it’s automated code

At Blockie we are building tools to build DAOs, we will be releasing a DevKit soon for this purpose. I will also personally be writing more articles regarding DAOs and their likely use cases for near term applications and futuristic applications. If this interests you feel free to follow me!