Imagine starting a company with a group of friends. Together, you came up with the idea and together you executed it. However, in running the company you cannot all agree on who would run the company as you all made the same amount of contribution in finances, ideas, and energy. Eventually, you all decide that each one of you should run the company with equal decision-making power, and the decisions made are recorded on a transparent, public ledger.

This is the revolutionary concept behind Decentralized Autonomous Organisations (DAOs) and this article aims at providing a better understanding of DAOs as a new wave of web-native organizations that are reshaping the way we work and collaborate.

What is a Decentralized Autonomous Organisation (DAO)?

In explaining what a DAO is, it is important to break down the elements and understand them individually. The DAO has three major characteristics; Decentralization, Automation and Organisation.

Decentralization

Unlike traditional organisations that have a central authority such as a CEO or a board of directors, DAOs operate without a central leadership. The leadership and decision-making power is distributed among all the members and decisions are made collectively.

Automation

While in traditional organisations rules and codes of conduct are written, printed on paper and kept as a compendium, DAOs have an automated system in which contracts are written directly into code. These contracts are called Smart contracts and are run on a blockchain which enables DAOs to operate automatically according to the rules encoded in the smart contracts.

Organisation

DAOs can be used for a variety of purposes such as managing a project, a fund, or even a social club. This is possible as long as the organization’s rules and transactions are recorded transparently and on the blockchain.

How does a DAO work?

The idea of owning a DAO is exciting and innovative, however, there’s more to DAOs than just being decentralized. So what more do you need to know about how DAOs work?

Smart Contracts: The core rules and decisions guiding an organization are encoded into smart contracts on the blockchain. Simply put, the contracts define how the DAO operates, governance mechanisms and how funds are managed. When proposals are made and voted upon, they are executed automatically by the smart contract if they receive enough votes in support of the proposal. Once deployed, the smart contract cannot be altered.

Token-Based Governance: DAOs issue tokens that represent voting power. This token-based governance system typically means that members can vote on proposals based on the number of tokens they hold. This makes it possible for all members to be part of the decision-making process. The possession of more governance tokens often translates to greater voting power.
Proposals and Voting: Members can submit proposals relating to new projects, changes to the DAO or use of funds. The proposals are then voted on by the members and proposals with enough votes are executed automatically by the smart contract.
Transparency and Trust: Transactions and rules are recorded on the blockchain making everything transparent and verifiable by every member.

Benefits of using DAOs

Security: Blockchain’s security and the mechanism on which it runs make it nearly impossible to tamper with votes and actions.
Transparency: All transactions and decisions are recorded on a public ledger which is accessible by every member, ensuring transparency and accountability.
Decentralization: There is no central authority; hence, decisions can be made fairly and quickly without any parties feeling cheated or unheard.

The Future of DAOs

The future of DAOs is promising as it offers relevant benefits for businesses. DAOs are also highly flexible and scalable and with the potential to reshape various industries. DAOs offer a compelling vision of a more transparent, collaborative, and community-driven future for online interactions and collaborations