What is a DAO?

by | May 11, 2021

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The Crypto ecosystem can be said to be one of the most innovative segments of this world. The ecosystem is trying to change the concept of money, art-ownership, decentralized finance, crowdfunding, and whatnot. Adding to the list of innovations is DAO aKa Decentralized Autonomous Organization.

As per the definition, a DAO is described as an open-source blockchain protocol governed by a set of rules created by its elected members that automatically execute certain actions without the need for intermediaries. And here’s what it means:

The Idea of Decentralization

To understand the concept and working of a DAO, we need to first understand the meaning of the term decentralization. Basically, any system or an application that is being run and governed through its participants in a peer-to-peer manner can be said to be a decentralized system or application. 

A decentralized system is not governed by a central authority but by its participants. Tech consumers across the world are increasingly worried about the power held by centralized systems and organizations. These centralized systems are breaking the idea of an open and free internet envisioned by the early internet pioneers.

Therefore, there’s a dire demand for decentralized systems and the idea for Web 3.0. Bitcoin is an example of a decentralized payment system, whereas Ethereum is a decentralized computer processing system. Various tech entrepreneurs are working on ambitious ideas for building a decentralized web such as decentralized storage, cloud computing, video streaming, exchanges, marketplace, etc.

With the notion of decentralizing technologies, the idea of a decentralized autonomous organization aKa DAO emerged. What if you can build a decentralized company that pays its employees on time, takes care of its funds, spending, and reserves? That’s where the concept of DAO comes into play.

Understanding a DAO?

A DAO is basically an organization built using blockchain technology without a central authority. A DAO doesn’t require a management hierarchy, board of directors, or founders to make decisions about the organization’s behavior or money expenditure. DAO is an organization with internal capital, most likely with a native token, and all of its users are incentivized by rewards that help them work towards a unified goal. 

Even though at times, DAOs do need human intervention, these organizations rely only on code for most of their decision-making. That way, DAOs are able to drastically cut down management costs and avoid human greed from manipulating the system.

When it comes to initial funding, a DAO works in a similar model as that of ICOs. Talking about the first implementation of the real world, “The DAO” came into existence in 2016 and followed the same ICO model of crowdfunding for initial investment. However, it failed dramatically with a hack, Ethereum hard-fork, and the project getting defunct. 

Since “The DAO” failure, many new DAOs have come into existence and are currently operational, signaling the wave of innovation. Makeda is one good example. Another one is DASH – a privacy-first cryptocurrency. We hope to see a world where there are no tech monopolies, and the power is decentralized. 

Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"

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