A big advantage with cryptocurrency, enthusiasts often say, is that it is decentralised, meaning there’s no central authority like a government or central institution that governs the industry.
A big advantage with cryptocurrency, enthusiasts often say, is that it is decentralised, meaning there’s no central authority like a government or central institution that governs the industry. All transactions depend on the underlying blockchain technology and are available to be seen by anyone anywhere in the world. This decentralisation also offers a degree of security and privacy, typically not available with transacting in standard currencies. Inspired by this idea, a group of technology developers proposed setting up a decentralised autonomous organisation, or DAO. Thus, a DAO is an entity with no central leadership.
What Is DAO?
It is an Internet-native organisation collectively owned and managed by its members. Decisions in a DAO structure are made via proposals the members vote on during a specified period. And these decisions are governed by a community organised around a computer-defined set of rules enforced on a blockchain. These smart contracts allow participants to take an equal part in the decision-making processes inside the organisation.
The main idea behind setting up DAOs is to give a large number of contributors the ability to participate in its governance and future development.
Decisions made by the community include how the company will use funding and resources. The DAO treasury can only be accessed by the approval of its members.
Initially, Bitcoin appeared to be the first project to get close to being a DAO. But when the Ethereum blockchain, with its smart contract capabilities, was introduced, DAOs started evolving and moved closer to offer complete transparency and community governance.
DAOs have several advantages. One of them is the lack of trust needed between two parties to enter into a contract. A traditional organisation requires a lot of trust in the people behind it, but with DAOs, only the code needs to be trusted. Since the code is publicly available, trusting it is a lot easier.
Also, as mentioned earlier, all DAO actions have to be approved by the community; the process is transparent and verifiable.
However, DAOs also have faced criticism. In 2016, some developers pointed out several potential security vulnerabilities and asked investors to be cautious in voting on future investment projects until those issues were resolved. Soon, hackers attacked the DAO and gained access to 3.6 million ether coins, worth about $50 million (roughly ₹ 371 crore).