What Is a DAO and How Does It Unleash the Power of Blockchain?

You are likely to come across DAOs if you follow the cryptocurrency trends long enough. It stands for decentralized autonomous organizations and is a trendy crypto buzzword, just like NFTs, DAOs, however, are likely to fundamentally alter how we organize ourselves into groups, whether it is corporations or governments. Think of how they operate then turn it upside-down.

Recently a decentralized autonomous organization (DAO) announced it lost its bid to buy a copy of the Constitution from Sotheby’s after a high-stakes bidding war that captured our attention. Still, the rise of the DAO, a group of people who met on the web, is a unique case study.

DAOs allocate power to members rather than a single central authority, potentially creating a truly democratic system. Simply put, the people get to choose how the group works for them. It could be getting rid of leaders that act against the interests of members. All that is possible with the power of smart contracts and blockchains.

What is a DAO?

DAO is an acronym for decentralized autonomous organizations. It uses a set of rules facilitated by token systems and smart contracts to function. Let’s go through a quick rundown of each. A smart contract is an agreement that executes once specific conditions have been met. It does not require another person to activate It. It essentially does its thing after the terms have been reached.

People also become members if they own some of the DAO’s tokens that give the ability to vote on certain changes to the DAO. The smart contracts enable the proposal after there’s a specified number of votes. If not, it will depend on the system whether it will accept new proposals or perform a recount.

The Ethereum blockchain is the key network when it comes to smart contracts and that’s why most DAOs are built on it. While other cryptos still have this feature, the Ethereum blockchain is still the go-to network today.

Keep in mind that it is just a brief overview of how a DAO operates. It is a new concept, which means that it may change significantly with time.?So, it is an organization where the members are in charge, and computers make all this possible?

There are examples of it being used in the real world currently. For instance, there’s a MakerDAO or MKR, a group that ensures that the value of Dai stablecoin (DAI) is tethered to the United States dollar. There’s also Yield Game’s DAO. Certain video games such as Axie Infinity allow users to earn money while they play. It is also known as an NFT game and it is part of YGG Dao, which links these games and allows players to earn even more.

A look at additional examples of DAOs and some of the blockchain-based services that they provide:

DASH: It is a cryptocurrency that allows users to send money instantly. Decisions are made by several masternodes, but most governance tokens are held by a small group. It is due to this reason that DASH may seem centralized as opposed to decentralized as you would expect from cryptos.

Decentraland: Today, people are earning millions by investing in virtual worlds. Decentraland allows you to create one yourself and actually profit from it.

Proof Of Humanity: It is a project that aims to register people using blockchain. You can think of it as a superior version of government issued IDs. Participants earn Universal Basic Income (UBI) tokens each year and can stake UBI to earn even more.

Uniswap: It is a DAO-run crypto exchange that’s powered by UNI tokens. Just like most DAOS, it is also built on the Ethereum network.

How Can DAOs Fix Organizations?

Organizations usually have a board of directors or a leader overseeing operations. Unfortunately, they can act against the interests of members. Look at a regular company for instance. If additional funding is needed, it could sell some of its shares, and equity financing distributes the ownership to the stakeholders.

Unfortunately, investors may pressure business owners to act in ways against the interests of customers. For instance, it may rush the launch of a product to satisfy quarterly revenue targets. So, shareholders get what they want at the expense of customers receiving poor quality. There’s also the issue with red tape that is common in these groups.

The concerns of a member must first go through numerous people before the leader ever gets to hear them. The representatives can fail to process those for a variety of reasons. DAOs help to eliminate these human issues by using smart contracts. Here is a closer look at the benefits they provide:

Brainstorming: An organization typically moves according to the goals of its leaders. Unfortunately, this just leaves the planning in the hands of very few people. DAOs, on the other hand, use inputs from multiple people, which means that they can come up with ideas that might otherwise be missed by a few leaders.

Conflicts of Interest: Smart contracts will do their jobs after the terms have been met. There are no leaders to convince or force it to move however they want and this means that DAOs remain committed to serving members.

Power to the People: Members are allowed to vote on issues and the DAO executes it no matter what. A group that follows such a model pits the interests of members front and center. This can also improve various aspects of our world so that they work better for people.