What are DAOs?

DAOs are decentralised autonomous organisations represented by the rules encoded in the smart contracts. Which are controlled by the organisation members and not influenced by a central government. As the rules are embedded into code, no managers are needed, removing any bureaucracy or hierarchical hurdles. this means that the rules are the same for everyone, no matter who they are, and unchangeable—so there are no finding loopholes to get out of your obligations or restrictions. As the code is law, there is no need for intermediaries who will ensure that the rules are followed.

The next generation is looking forward to starting social organisations, that can create and exchange value in a trusted environment. So, many people want to organise themselves in organisations in a “safe and effective way to work with like-minded folks around the globe’’ according to Ethereum. Because of the DAO’s decentralisation, it usually means that it is also democratised meaning any changes implemented would be voted by all participants rather than a single group of decision-makers and all the votes are automatically tailed and carried out by software to remove the possibility of corruption. 

How to create a DAO?

Many projects in the crypto space have DAO behind them, as this tends to be one of the best ways to keep the governance of the project transparent and fair.

The first step is to set up the smart contract underpinning. These rules are frequently extensive and cover a wide range of topics; failing to set something up during the initial development phase means that it can only be changed later through voting, which can be a lengthy and time-consuming process, especially if the forgotten rule is critical to the network’s health. This code must also be thoroughly tested and retested to ensure that nothing is overlooked.

The next phase is securing funding for the launch of the DAO. This is often achieved through token sales, which also handle the governance side of the process—most of the time, the amount of tokens you own correlates to your voting power within the organisation.

Finally, the DAO is deployed on the blockchain. Once it’s deployed on the blockchain, there are no changes that the founding team members can make without the input of the other participants, or token holders. This is when all the rules go into effect including the DAOs governance. After this changes can only happen if it’s voted on by the whole network.

While DAOs aim to be improvements to existing hierarchical structures, they are far from perfect themselves. One of the most often cited issues is that many institutions from traditional finance believe that the masses should not be trusted with major financial decisions. Additionally, DAOs are mostly unregulated and tend to spread out over many jurisdictions, which makes solving potential legal issues extremely complicated at best, or even completely impossible. Finally, as the example of The DAO proved, once a DAO is up and running (deployed on the blockchain, in other words), changing even life-threatening bugs in the code can be a slow and costly process that gives malicious actors plenty of time to act. Even the most trivial bug that would otherwise be solved in a matter of hours has to undergo the same voting process. However, DAOs shouldn’t be ignored as they could change the landscape of business as these types of organisations are becoming more prominent.