Decentralized Autonomous Organization: Understanding DAO
I was on Toshi, the Ethereum browser discussing in the chat a hypothetical ‘Amazon.com’. Still getting to grips with the concept of blockchain I assumed the current system of big controlling websites with monopolies could continue on the new web, only somewhat curtailed in their powers. Someone said DAO and I’d heard the term before so I scuttled off into the internet to read more about it.
The thing about the world of blockchain at the moment is it is all still written in nerd speak. That is the language I used to decipher when working with PhD students at John Moores to understand their abstracts. This means I can do my best to translate all this techno talk for the average human being to understand.
As far as I understand it:
DAO stands for Decentralized Autonomous Organization. Basically it replaces management decisions in what would be a conventional corporation. Its a sort of ‘set it and forget it’ decision making process which can only be overridden with the overall consensus of those holding DAO tokens.
According to Coinbase Blog anyone can buy DAO Tokens for a project (via, I imagine, Etha) and that gives them a say it what goes on.
Now the flaws in this have been made apparent in the past as in one use of “The DAO” system a hacker got in through a flaw in the initial program and nobody could do anything to stop it due to requiring an almost committee like intervention.
Eventually the errors that make up the style will no doubt be ironed out and now we can understand what this means for the reality of commerce over Ethereum.
Imagine Facebook, now under a DAO design it wouldn’t be ‘owned’ by Mark Zuckerberg but by each individual DAO token holder as well as the users. The alterations happening with the consensus of the users. The initial investment being made via an ICO (initial coin offering) – this is basically an IPO on the blockchain. This could be a hindrance as much as anything because it would render it somewhat rudderless regarding decisions. Remember when Facebook introduced the live feed. That would possibly be shot down immediately, which would hinder progress.
I imagine a compromise must be made between full autonomous programming and the ability to step in. This would be a more effective management structure with regards to cost/creativity but also still render it vulnerable. I can imagine there needing to be a gap between DAO token holders and stakeholders. DAO holders would replicate the board so to speak but then this damages the moral point of such democratic system.
Another issue being that a DAO would mean sticking to basically a business plan without room for much deviation. This lack of flexibility could be dangerous to a company especially given the rate of pace with which this technology is due to change.
Where I see it working is for a ‘floating’ structure of a marketplace. Basically one built around swapping transactions for goods were the marketplace itself is owned by the merchants. This would ensure the benefits for the merchants themselves with no overall need for the stock holders to be remunerated separately from those who benefit from the system. This system won’t need to be as flexible beyond the scope of the DAO shareholders. The question only exists of expanding the market which must be done by committee as it would have been done traditionally.
A ‘floating’ structure would be nothing short of a community working for its own interest.
Hopefully I’ve interpreted the technology correctly in my analysis and if anyone disagrees please feel free to comment below. The point of such pondering’s is to get to the truth of such matters then everyone can benefit so feel free to contribute below.