What is DAO? Decentralized autonomous organization

What is DAO? Decentralized autonomous organization

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Victoria Okonkwo has a background in English Language and Literature. She is an SEO expert writer with WordPress experience.

Victoria has a reputable track record of competence and skill in the crypto space, finance, and the blockchain world in general, having created 500+ SEO content for numerous clients.

She has over five years of cross-industry content and copywriting experience, a B.A. in English literature, and has completed over 500 projects.

Imagine an organization where there is no boss, and every member takes part in making major decisions for the organization. A place where there are no human errors in transactions, records are open to every member and can be accessed anytime and anywhere, and where there are no manipulations or cheating in sharing profits and losses. This is what the DAO seeks to achieve.

DAOs, unlike traditional businesses run by boards, committees, and executives, are governed by a set of rules written down in code and enforced by a network of computers running a shared software. In this article, you’ll learn what a DAO is, its pros and cons, and how to create or join one if interested.

Understanding DAO

DAO stands for Decentralized Autonomous Organization. Consider It as an organization that is decentralized and autonomous. It has no central governing authority like a CEO and runs a flattened hierarchical system.

Every member of the DAO decides by voting. The smart contract enforces the proposal with a predetermined level of consensus. The autonomy of DAO is because transactions are executed by smart contracts, which incorporate the rules of the DAO.

Smart contracts are programs that execute transactions if and when certain conditions are met. Members of the DAO determine these conditions. The blockchain, which serves as a ledger, then keeps track of the smart contracts’ transactions. Once these records have been made, they cannot be changed.

How does DAO work?

Instructions are programmed in the form of smart contracts to carry out actions according to predetermined parameters. This way, the DAO can execute tasks autonomously.

The DAO also uses Consensus Protocol to ensure that decisions are made only by members of the DAO and are consensus by all.

The DAO then issues tokens to those who want to join in exchange for cryptocurrency or fiat to raise money for its treasuryToken holders also receive voting rights proportional to their tokens.

The pros of DAO

1. Automated
The use of Smart Contracts in the DAO makes the execution and recording of transactions automatic. It eliminates the bureaucratic procedures involved in a traditional organization. Once predetermined criteria are met, the smart contract executes the transaction.

2. Transparency
The autonomy of the smart contract and the inability to edit data on the blockchain makes the DAO transparent. As a result, they are reducing human manipulation and mismanagement of funds.

3. Decentralized
There is no central governing authority regulating the DAO or fully controlling the DAO. The only rules are those written on the smart contract, which has the consensus of the DAO members.

5. Community-Based
The decentralized nature of the DAO fosters group participation. Members have voting rights and can participate in the organization’s major decision-making.

The cons of DAO

  1. Security Threat
    Hackers may identify loopholes in a DAO code and steal its funds. A famous example is The DAO, which led to the emergence of the Ethereum classic. Unfortunately, some hackers took advantage of the vulnerability of the DAO and stole 3.6 million $ETH from its treasury.
  2. Longer time to reach a decision
    Some DAO systems may be unable to collect and count votes quickly. This prolonged the time is taken to make a common decision.
  3. Uneven voting rights
    Voting rights are distributed based on the number of tokens bought. This accrues the voting rights of some members, who then influence the others to vote on their proposal.

Criticism of DAO

According to IEEE Spectrum, the DAO was susceptible to programming errors and attack methods. The organization was likely not making things any simpler by breaking new ground regarding regulation and corporate law.

Investors were worried that they would be held accountable for the DAO as a whole and that their investments would be subject to the organization’s structures, which could have had many consequences.

Also Read – Why Saving Money is Important to Protect Yourself From Inflation

Conclusion
A DAO seeks to enhance the conventional management structure used by many businesses. It aims to give each member a voice, a vote, and the chance to suggest initiatives rather than relying on a single person or small group of people to direct the direction of the entity.

DAO, like every other business organization, is not without risks. Therefore, every member shares in the risk and is committed to the group’s success. Rewards are also shared amongst members of the DAO if the group succeeds.

+ posts

Victoria Okonkwo has a background in English Language and Literature. She is an SEO expert writer with WordPress experience.

Victoria has a reputable track record of competence and skill in the crypto space, finance, and the blockchain world in general, having created 500+ SEO content for numerous clients.

She has over five years of cross-industry content and copywriting experience, a B.A. in English literature, and has completed over 500 projects.