The concept of DAO
A decentralized Autonomous Organization (or simply DAO) is a company in which all decisions are made through a complex system of smart contracts, by its shareholders voting. It can be said that, on the one hand, this is a well thought out set of rules created to ensure the successful development of a company; and on the other hand, to guarantee transparency and the absence of hierarchy.
The concept of a DAO in its current form was formed largely due to the Ethereum network and Vitalik Buterin, who created one of the first such organizations. It was a cloud platform created for crowdfunding purposes. It did not have a legal entity and belonged directly to the shareholders. In the ICO, the DAO set a record by collecting about $165 million. Another good example of a decentralized autonomous organization is the cryptocurrency Dash.
Problems with DAO
One of the first difficulties faced by such organizations is the uncertainty of its legal status, which has caused all sorts of problems and troubles. Currently, DAO’s are classified as «general partnerships», which means that each participant is responsible for the actions of the company and, in this case, agrees to incur its debts.
Another problem of a DAO is the difficulty of changing the smart contract’s code after its integration into the blockchain. On the one hand, this is good because it prevents the possibility of changing the rules, but the disadvantage is that any code can encounter errors that cannot be fixed when detected. This happened to Buterin’s DAO: hackers simply stole the company’s funds using a bug in the system.
Application and prospects
Despite the revolutionary nature of DAO’s, the lack of hierarchy, and ideological proximity to the ideas of cyber-anarchism, this system is fully compatible with standard business processes. And this is not only about the financial or accounting fields, where the use of a DAO would be most logical. Decentralized autonomous organizations can also help to optimize legal activity and other operational processes.
DAO’s give shareholders greater control over their funds and simplifies management processes. In the future, this system may be closely integrated into IoT and become part of the global economic system forever.