Decentralized autonomous organizations (DAOs)
What do you think of a centralized organization?
A general definition of a centralized organization is one where most decisions are made at the top of the organizational hierarchy.
DAO, its purpose, and its idea can be best described with the following example:
In a typical organization, as shown above, a strict hierarchy is maintained where the leader will supervise a large number of employees and his pronouncements will be considered final, or, in our terms, centralized. In DAOs, we will decentralize those organizations by eliminating the leader role and replacing it with a majority decision-making process. For instance, with DAOs, if we want to hire a new teammate, we will present a proposal, and if the majority approves, that proposal will be granted. However, in a traditional organization, the head, or leader, would make all decisions.
It does not require human intervention in its functioning :
When things are repetitive, does it require any human intervention? For instance, nowadays, chatbots are employed for customer service. Artificial intelligence (AI) is used in chatbots to provide standard customer service responses. They assist clients in quickly resolving straightforward queries and issues while freeing up agents to handle intricate human interactions.
So now, for commonly occurring queries, artificial intelligence is deployed to answer the query, as it does not require human intervention or any logic.
If the query is not straightforward and repetitive, it then requires human intervention.
On a similar line, can we think of a program that is deployed to take decisions based on saved logic and perform the task in blockchain, i.e., solve queries? A program that works on if-else conditions of programming?
This is the idea behind DAO. It is just a collection of programs that acts as a virtual organization consisting of a lot of smart contracts.
For further reading on smart contracts on the blockchain, click here. Smart contracts are computer programs that run automatically when specific criteria are satisfied, and they are the engine behind a DAO.
DAO simple definition:
So, DAO is a self-governed organization that works decentralized from any governing body(no human intervention for any kind of decision-making except voting for consent and approval of all stakeholders).
Why DAO is needed in businesses nowadays? Why has demand increased?
DAOs enable us to collaborate with like-minded people from all around the world without relying on a leader to oversee the finances or daily operations. No CEO or CFO has the authority to spend money freely or to tamper with the records. Instead, the organization’s operations and financial decisions are governed by blockchain-based rules that are built into the code.
It has internal wallets that nobody is allowed to access without the group’s consent. To ensure that everyone in the organization has a voice and that everything takes place in full transparency on the blockchain, decisions are made through proposals and voting.
So the following are characteristics of DAO:
- It is a member-owned organization with decentralized management.
- It is a secure approach to working with online strangers.
- It is a secure location to donate money to a certain cause.
- It is a transparent system.
Why is it called a decentralized autonomous organization?
Because it does not require a centralized institution or person, it is a decentralized organization. Being autonomous entails being self-reliant and capable of making independent choices. An organization that is autonomous can make its own rules. Similarly in DAO, it takes its decision based on fixed smart contracts, by consent of all stakeholders, and cannot be ruled over by anybody.
Difference between DAO and usual organization
DAO is democratized while usually organisations are hierarchical in nature. DAO requires voting for consent and sometimes collective decision-making whereas in usual organizations voting approach may or may not be taken. In DAO, there is no intermediary involved in polling and counting votes, while in the usual organization, this mechanism is handled manually, which means some kind of human intervention is required in management. As a result, DAO is a transparent organization however usual organizations may or may not be transparent.
