From high inflation rates in countries like Argentina and Turkey to the trade war between China and the United States, each country faces their own set of problems. A sizable number of bitcoin supporters come from a community of people who are tired of their government having all the control in printing money.
While bitcoin is a possible solution in decentralizing money and taking financial control away from the government, finance is but one aspect of governance, albeit an important one. What if I told you that in the future there exists a world where citizens like you and I can decide on our own form of governance? A world with no hierarchy and people get rewarded based on work done and a set of rules agreed upon by the community? This can be in the form of governance in a company or even nationwide.
With blockchain technology, this future picture may actually be realized through DAOs.
What Are DAOs?
DAOs stands for Decentralized Autonomous Organizations. By the simplest definition, it means independent organizations with decentralized power operating under an agreed set of governance rules that are enforced through blockchain technology.
Basic components of an organization include, but is not limited to, voting rights, tokens, role assignments, fundraising, and accounting. Blockchain technology provides immutability of records (Example: roles assigned and transactions) and transparency (identity and number of tokens held are shared to the public) By digitalizing your organization onto the blockchain, key functions such as voting, payment to employees can be executed without a central authority.
Decentralization of Power Through DAOs
For ease of explanation, let me provide an example of decentralization of power on the company level for you. In a company, power exists in many forms, such as the power of employment termination, disbursement of payroll and voting in the company. With DAOs, the rules of a company are set in stone before the company is incorporated and cannot be changed in the future.
These rules can be for payroll, where the salary is disbursed at a certain date set in the smart contract. If work that has been completed was satisfactory, funds are automatically disbursed to the employee’s wallets and the company does not have the power to withhold payment.
Depending on your point of view, not being able to change the rules set from the beginning can be a major flaw in the system, as there will always be bad actors looking to exploit loopholes in the system. This is best seen in the case of the DAO, where an intelligent hacker managed to exploit the system and stole funds. I find this article to provide a good explanation.
Despite such an alarming example and the many potential pitfalls for DAOs, there are still projects working to achieve the holy grail of a perfect DAO. One good example of a project that facilitates the creation of DAOs is Aragon Network (Full disclosure: I personally own some ANT Tokens) On the Aragon Network, users can set up their company on the platform, with their own rules and organization structure. These are automated by smart contracts, hence taking away the central authority in governance.
How Long More Before DAOs Become A Reality?
My personal opinion is that DAOs are going to take a really long time before they are a reality in this world. A few major blocks still stand in the way of this vision being realized.
- I don’t think I am wrong in saying that there has been no DAO with a perfect system that cannot be penetrated by hackers. Once multiple DAOs have proven that they cannot be penetrated can DAOs be considered to be secure
- Which brings me to my next point, which is that even with a secure DAO that cannot be hacked, the DAO still needs to be recognized by regulatory bodies to be considered legitimate. Legal documents representing the company needs to be digitized and put onto the blockchain for the DAO to be recognized under the law. Changes in real life need to be reflected onto the blockchain. Furthermore, aspects like voting rights in the DAO needs to be recognized by regulatory bodies, at least in the short term
Unless these two factors are resolved, the conversation on DAOs becoming legitimate organizations cannot begin. Personally, though I am excited at the possibilities DAOs brings to the table! It will change the entire way we work in organizations in the future.
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Tired Of Centralized Power? DAOs May Be The Solution was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.