Decentralized Autonomous Organization (DAO)
WHAT ARE DAOs?
- A decentralized autonomous organization (DAO) is an entity in which all members participate in decision-making, because there is no central authority.
- Members of a DAO own tokens of the DAO, and members can vote on initiatives for the entity.
- Smart contracts are implemented for the DAO, and the code governing the DAO’s operations is publicly disclosed.
GENESIS OF DAOs:
- DAO is an organisation represented by rules encoded as a computer program that is transparent, controlled by the respective organisation members, and not influenced by a government.
- The idea behind DAOs is to create self sustaining, community driven entities governed by smart contracts on blockchain networks.
- These smart contracts automatically execute pre-defined rules without the need for intermediaries, ensuring trust through code rather than traditional authorities.
- One of the most important aspects of DAOs is their potential to change the idea of collaboration.
- They enable global, borderless cooperation on an unprecedented scale.
- Participants, often referred to as token holders, can propose and vote on decisions related to the organisation’s goals and resources.
- This decentralised decision making process ensures that no single entity holds undue influence.
APPLICATION OF DAOs:
- DAOs are already making their mark across diverse industries.
- A DAO is intended to improve the traditional management structure of many companies.
- A DAO also strives to have strict governance that is dictated by code on a blockchain.
- In the art world, artists are tokenising their creations and utilising DAOs to manage royalties and maintain control over their intellectual property.
- Supply chain management is another arena where DAOs are gaining traction, as they offer transparency and traceability in global supply chains, ensuring the authenticity and quality of products.
- Even in the governance of online communities, DAOs have emerged as tools for decision making, with platforms like DAO stack facilitating decentralised governance structures for internet communities.
ADVANTAGES OF DAOs:
- They are decentralising entities, shifting power away from centralised authorities and placing it firmly in the hands of the collective.
- Decision making within DAOs becomes a democratic process, where token holders have a direct say, resulting in a more equitable distribution of influence.
- Transparency and trust are fundamental tenets of DAOs.
- This transparency can potentially disrupt traditional industries by eliminating the opacity often associated with centralised organisations.
- DAOs champion inclusivity, democratising access to resources and opportunities.
- They facilitate global cooperation, allowing participants with shared goals to unite without the need for intermediaries.
- This dynamic environment fosters innovation and cooperation as ideas flow freely, unencumbered by hierarchical structures.
CHALLENGES OF DAOs:
- DAOs require input from all individuals in the organization, which can lead to longer voting periods and slower decision-making.
- According to IEEE Spectrum, the DAO was vulnerable to programming errors and attack vectors.
- While a blockchain ensures confidentiality by encrypting interactions, security is still a concern for DAOs.
- Automated smart contracts can be difficult to change when a problem is discovered.
- Hackers can discover loopholes to legally misappropriate funds against the interests of shareholders.
- Participants can pay high transaction fees of up to $100 per transaction in early DAOs.
- Humans are still required to execute physical and legal processes, which can thwart the intent of the DAO.
WAY FORWARD:
- As DAOs continue to evolve and proliferate, it is imperative that legal experts, blockchain developers, and policymakers engage in ongoing discussions to create a legal framework that allows DAOs to harness their transformative potential while adhering to the complexities of the law.
SYLLABUS: MAINS, GS-3, S&T
SOURCE: THE HINDU
