What’s a DAO and how does it work?

Cryptocurrency has developed into a $ trillion industry in just over ten years. For some of it’s success, there are a lot of aspects which are shrouded in mystery. DAO’s is one example.

A DAO is a way of making decisions without putting someone in charge, instead it uses governance backed by technology and financial stake.

Centralised authority is one of the most controversial issues in society. People don’t trust politicians and corporations, and usually this is because of the situations where they have been let down by those entities.

The Learn Crypto blog doesn’t have the bandwidth to fully unpack the reasons, but it centres on handing power over to a minority of decision-makers who do not act in the best interests of those they represent.

Smart contracts are immutable decisions made between two or more groups. The use of blockchains means that decisions cannot be tampered with and must be agreed upon by all participants in decentralized places like Reddit.

This allows the process of decision-making to be done by the community according to the amount that they put into the DAO.

DAOs date back to the earlier days of blockchain history, decades before they were ever possible.

The History of DAOs

Modern states have been around for a few hundred years, and their power is determined by the invention of gunpowder.

The rise of gunpowder gave armies more power than before, due to wealth as much as discipline or loyalty.

The tribal level was the primary form of societal organization with some examples of progressive decision making methods. These methods were enough to be effective on smaller scales, and DAOs can be seen as an evolution of those methods.

Crypto has a negative association with mining, but it is interesting to see how local communities respond instinctively when they are exposed to new sources of precious minerals, and how they cultivate their own government.

Gold and silver were often discovered in remote locations, far from recognized authorities. Consequently, people from all different cultures lived in extremely challenging environments, scrambling to find their fortune.

According to the Mining Councils, there is no need for a hierarchical system given that codes of practice were established without them. These councils claim that problems arose from time to time, but they were able to solve it.

Cooperatives provide some inspiration for the principles of a DAO because they are owned by the members, and their objective is to serve their needs. The cooperative usually has an organizational hierarchy as a form of decision making, since there has to be a formal way of running the organization.

A DAO generally seeks to create the same principles found in self-organised systems, but this time the decision-making power is distributed. Blockchain technology will power this system.

What does Dao mean and how does it work?

The founders of a DAO are the ones who determine how it evolves and what its rules will be.

Crypto-based DAOs help companies grow and manage their finances, or whatever else the blockchain is applied too.

Programs are written in a programming language called Solidity which can execute programs so long as it is written into a Turing complete blockchain, like Ethereum.

Once a blockchain is committed, no one can unilaterally change it except through the governance process.

A DAO is a decentralized organization with the support of tokens to enable the rights of governance. The few, functioning DAOs revolve around speculation, but the right to participate in governance is inversely proportional to financial commitment.

With DAO communities, voting and submitting proposals is easy. Tokens holders can suggest changes to the rules.

Although DAOs introduce a new form of democracy, they face challenges when put into practice.

There have been instances where disproportionate power has been given by founders and the token holders are not very interested.