Decentralized Autonomous Organizations (DAOs)

Pronounced Dau(s)

DAO’s are exploding in popularity, whether it’s for stupid shit like trying to buy an old copy of the US constitution or for more noble things like raising $3 Million for the Ukrainian army, DAOs now have their own place in the blockchain world. So, What is a DAO?

What is a DAO?

Let’s start at the beginning, 

DAO is an acronym for Decentralized Autonomous Organization. This intimidating acronym is a fancy phrase for decentralized board of directors.

A DAO is people with money invested in a decentralized safe making decisions on how to spend the money in the safe.

The difference between DAOs and regular boards is that DAOs are decentralized and they don’t need a CEO to actuate their decisions.

Instead of having a CEO give instructions to his subordinates, once a vote is passed by the decentralized board, it happens.

It happens because the smart-contracts self executes. That’s where the Autonomous in DAO comes from.

How Do DAOs Work

DAOs work pretty much like regular companies if they had IPOs at birth;

• The original smart-contract that runs the DAO is written by the developers.
•  Then the devs do the crypto equivalent of an Initial Public Offering (IPO); an Initial Coin Offering (ICO). The coins sold during the ICO are called governance tokens.
• To become a member of the DAO, you purchase governance tokens; your voting power is directly related to how many governance tokens you have.
• People can now propose how the money raised from token sales should be spent.
• The DAO votes on the proposals and they can either approve, decline or downright ignore proposals.
• When a proposal is approved, the smart-contract executes.

Wait, I heard the first DAO got hacked. 

To be technical, the first DAO is Bitcoin, but the second first DAO; The DAO did get hacked and it’s a very interesting story.

The term DAO is actually adapted from the original DAO; The DAO (no pun intended). 

To be clear, the first DAO was named The DAO.

In 2016, The DAO went live and raised 150 Million in Ether (ETH) during the ICO. 

Yes, $150 million in 2016, approximately 7.5 Million Ether currently worth 22.5 Billion USD.

Unfortunately there was a flaw in the supreme smart-contract and some genius programmer exploited it. 

He/she manged to drain 3.6 Million Ether (currently worth 10 Billion USD), said hacker is the reason we have Ethereum Classic today.

Ethereum Classic is the original Ethereum Blockchain, and the Ethereum we know today is a “counterfeit” (forked) chain where the coins were never moved.

The DAO never recovered and is known for failing more than anything else.

Ok, but how’s Bitcoin a DAO?

Bitcoin (and all other cryptocurrency) are controlled by miners, they decide what happens by voting on proposed blocks, your voting power depends on how much computing power you have, your computing power is directly related to how much money you invest and all this is managed by code.

If this sounds familiar, it’s because I just described a DAO

One day all our companies might be run this way, the guys at FriesDAO certainly think so.

Glossary

Smart-contracts: Are blocks of code living on the blockchain, they self execute when certain conditions are met.