DAO, short for Decentralized Autonomous Organization , is a term that is often used in the cryptocurrency space but is not always widely understood. In a nutshell, a DAO is a set of organizational rules that trigger automatically without intermediaries. In this guide, we’ll explain in more detail what they are, how they’re created, and everything else you need to know about DAOs.
What is DAO?
A decentralized autonomous organization, as the name suggests, is a decentralized organization because it has no central government and is autonomous. The DAO’s rules are not governed by a small group of executives, but are set by code and enforced by a network of computers running the software; this means the rules are the same for everyone, no matter who they are, and cannot be changed – So no loopholes will be found to get rid of your obligations or restrictions. Since the code is the law, there is no need for an intermediary to ensure that the rules are followed.
Decentralization of a DAO usually means that it is democratized, not hierarchical. For example, any changes that should be implemented are voted on by a combination of all participants rather than a single decision maker. All votes are automatically calculated and executed by software, rather than relying on human intervention. This eliminates the possibility of vote counting being mismanaged or tampered with, increasing transparency and full visibility.
Since other participants in the DAO no longer need to be trusted, this means that it can consist of many people who do not know each other and would otherwise be unable to coordinate their common goals. In other words, they can go beyond any physical constraints and ensure that all parties are working in the project’s own interests.
How to create a DAO
Many projects in the crypto space have a DAO behind them, as this is often one of the best ways to keep project governance fair, transparent, and accessible to all who want to participate. However, like any organization, a DAO still needs to be established and funded before it can reach the wider audience it targets. The following is the third key stage of creating a DAO:
- The first step is always figuring out what the smart contract underpinning the DAO needs to do, and then creating it. These rules are usually very broad and cover a myriad of things. Forgetting to set something in the first stage of development means it can be changed later with a separate vote, which can be a long and laborious process, especially if the forgotten rules are important to the health of the network itself. This code also needs to be tested and re-tested in case something is missed.
- The next stage is to secure funding for the launch of the DAO and its continued operation. This is usually done through token sales, which also deal with the governance aspect of the process – in most cases, the number of tokens you own is tied to your voting rights within the organization. This is no different from a shareholder type relationship, which is why DAOs translate so well into the world of Decentralized Finance (DeFi).
- Finally, the DAO itself needs to be started. Once deployed on the blockchain, the founding team cannot make any changes without input from other participants or token holders. This is when all the rules take effect, including the governance of the DAO. In other words, the DAO is actually created.
After this, the DAO will function as expected and any changes will be voted on by the entire network.
Image source: Adobe Stock
What is “DAO”?
When it comes to DAOs as a whole, “The DAO”, which marked a turning point in Ethereum (ETH) history, still comes to the minds of many. The DAO is the name of a Decentralized Autonomous Organization that was founded in 2016 with the idea of being a decentralized form of venture funding. People can own The DAO Tokens and earn dividends from them if they want, or just profit from price appreciation. The DAO was one of the largest crowdfunding attempts at the time, raising around $150 million in ETH.
Just before the attack that marked the end of The DAO, about 14% of the ETH in circulation was invested in the project. A hacker then found and exploited a bug in the code that allowed them to steal $60 million. The large amount of ETH that has been tied to The DAO has caused divisions in the Ethereum community about what should be done. Those who believe there should be a fork that blacklists the attacker’s address, prevents him from transferring funds and rolls the blockchain back to the time before the hack, is led by Ethereum’s founder Vitalik Buterin, and this version of the block The blockchain is still the official one for Ethereum. On the other hand, those who opposed the decision forked the main Ethereum blockchain and created what is now called Ethereum Classic (ETC).
Image source: Adobe Stock
Potential drawbacks of DAOs
While DAOs aim to improve existing hierarchies, they are far from complete. One of the most frequently cited issues is that many traditional financial institutions believe that the public should not be trusted to make major financial decisions.
Additionally, DAOs are mostly unregulated and tend to be spread across many jurisdictions, making addressing potential legal issues extremely complex, if not impossible, at best.
Finally, as The DAO is like the example attests, once the DAO is up and running (in other words, deployed on the blockchain), changing even life-threatening bugs in the code can be a slow and costly process, Will give malicious actors plenty of time to act. Even the most trivial bugs that could have been resolved in a few hours had to go through the same voting process.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/blockchain-guide-what-is-a-dao/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.