Decentralized autonomous organizations have many advantages over traditional organizations, giving their members real power to make decisions.We will explain briefly, but in detail, everything a beginner needs to know about DAOs.
The DAO (decentralized autonomous organizations) provide us with a totally unique way to grow and build decentralized communities thanks to blockchain technology. This is what makes it a great use case for decentralized governance with blockchain technology.
In this article, we are going to quickly and briefly review everything that any beginner needs to know about DAOs.
Table of Contents
What are DAOs or Decentralized Autonomous Organizations?
If we go to Wikipedia we will find this:
“It is an organization built by codified rules like a computer program that is often transparent, controlled by members of the organization and not influenced by a central government; In other words, they are member-owned communities with no centralized leadership.”
These are coordinated through sets of shared rules (the famous smart contracts) which are applied through the blockchain. These work online and make use of blockchain technology to be able to record everything that happens in the organization.
In short, a DAO is a group of crypto enthusiasts who have a shared goal. They use blockchain to make transparent and efficient decisions. DAO would be like a company and its members would become shareholders.
However, DAO is not actually a company and its members are not shareholders either. These are governed by smart contracts that are capable of imitating the contracts of a lifetime. They are native internet companies collectively owned and managed by members.
Generally, they have their treasuries built-in. Nobody has enough total authority to be able to access it without the prior authorization of the group of members.
Let’s see, a DAO can be something simple, like a group of friends putting together money for a vacation, an investment, or something complicated, like a high-profile nonprofit with too many board members.
Differences between decentralized governance and traditional governance
The big difference between the governance of always (LLC and companies) the DAO is decentralization. Traditional companies have corporate rules and laws with the board and hierarchical roles. The board of directors and management are the decision makers.
On the other hand, we find the DAOs which are flat and democratized without hierarchical management, members have to vote for a decision to be made. Thanks to blockchain technology, they can eliminate the need for trust between members.
Smart contracts take care of the voting process and the result is implemented automatically without the need for any kind of intermediary.
Additionally, all activities in DAO are completely transparent and public for all its members, an advantage to consider. Traditional governance requires human intervention, which, as we already know, is prone to manipulation since most activities are private.
Why DAOs?
Because they are internet-native organizations, they have several advantages over traditional organizations. One of these is that it removes the need for general trust. Which allows anyone to collaborate and try to be part of achieving a common goal.
So, it is not necessary to trust anyone, simply the smart contract is capable of doing everything to supplant that need. The lack of hierarchy means that anyone is able to contribute their part.
Decisions are made by vote, so no one’s voice is greater than someone else’s. Making it easy for investors to raise funds, invest in companies, and make money (profits). When funds are pooled, investors can share and mitigate the risks associated with the investment.
How a DAO works
As we discussed earlier, these are blockchain-based organizations: they have no headquarters, no central location, and no centralized decision-making authority. Its way of operating is thanks to smart contracts that are executed automatically when the requirements are met.
Participating members can vote and comment on the functioning of the organization; voting on different proposals or creating your own. To prevent spam from these proposals, the only way one will pass is if a majority of parties are interested in having it passed.
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