Learning About DAOs

New technologies mean completely new way of doing things. And a new way of doing things require a different mindset. This is what excites me about crypto technologies. One such example is a Decentralized Autonomous Organization (DAO), a use case of the blockchain.

The most famous example of a DAO occurred in 2016 when hackers stole around 3.6 million Ether (ETH) from The DAO, a crowdfunded venture capital fund. At the time of the hack, the stolen Ether was worth $50 million USD. But now with Ether trading at $2331 USD, the hack would be worth $8.4 billion dollars.

The Ethereum Core Team lead by Vitalik Buterin sprung into action. The core team had the option of forking the entire Ethereum blockchain. Here, everything would be exactly the same, except the hack never happened. There was now two options:

  1. Keep things as is and don’t resolve the hack.
  2. Migrate to this forked version of Ethereum. One of the principles of crypto and blockchain applications is decentralization meaning no one entity has control over the application. This goes against that principle.

The core team decided to resolve this using a DAO, instead of the core team deciding they let the people vote on this decision. The community concluded that forking Ethereum was the way to go.

What is a DAO?

A Decentralized Autonomous Organization (DAO) is a new way of governing a group of people with shared beliefs on the blockchain.

Why is it useful?

Transparent. All information about the company, including all transactions are publicly available on the blockchain. This reduces corruption and censorship.

Consensus. Instead of Boards of Directors and Executives making decisions on behalf of the stakeholders, the decisions are made by the stakeholders themselves depending on how much of a stake they have in that organization.

For example, the publishing platform Medium, a private company, makes big decision through it’s BoD and Executive team. Once the darling of the publishing world, Medium has made questionable product decisions driving many of its users off the platform. Perhaps in the future, the users themselves can voice their opinions on these major product decisions through a DAO.

Resources

[1] A Beginner’s Guide to DAOs - Linda Xie

[2] The Dao of DAOs - Not Boring

July 29, 2021


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