What is DAO (Decentralized Autonomous Organization)?
The basic idea behind DAO is to create a company or an organization that can perform its functions without hierarchical management. The decentralized autonomous organization (DAO) emerged after the emergence of Bitcoin in 2009. Bitcoin was considered the first fully functional DAO because it has pre-existing rules can be managed automatically and is coordinated with a distributed consensus protocol.
DAO was inspired by Bitcoin’s ability to do business without needing a financial intermediary, and the idea that companies and other institutions could work one day without the need for a hierarchical governance.
DAO aims to place a company’s rules into a template from the beginning; the purpose of which is based on the self-financing of the business done without the need for financial support. For example, you are charged for a service of a car that does not have a driver, and it uses this fee to charge the car and improve its service. Or consider a vending machine that sells a drink or a snack. The vending machine sells you a drink for a certain amount and gets new products with the gains it gets. Processes such as auto-cleaning of the device are also written in advance with codes and the rules are formed.
Initially, Bitcoin was considered the first full-function DAO because it had a preprogrammed set of rules, functioned autonomously, and was coordinated with a distributed consensus protocol. Ever since, the use of smart contracts has been made available on the Ethereum platform, bringing DAOs closer to the people and shaping their current appearance.
What is required for DAO to be fully operational? First of all, a set of rules to work with. These rules are coded as a smart contract, which is essentially a computer program and exists autonomously on the internet, but at the same time, they need to perform a task that people can not do on their own.
Once the rules are established, the funding process for the DAO begins. This process is important for two reasons. First, a DAO must have a kind of internal feature, token, that can be spent by an institution or used to reward certain activities within it.
Second, by investing in a DAO, users get the right to direct their voting rights and then the way the DAO works. Once the funding process is over and a DAO begins to be implemented, it will work independently. Thanks to the open source code, their code is visible to everyone. In addition, all rules and financial transactions are recorded in the blockchain, it makes DAOs completely transparent and immutable.
All decisions about where and how to spend money after the DAO has been activated are given by reaching a consensus. Everyone with a share in DAO can bring up proposals about the future of DAO.
Stakeholders who pay a certain amount of money to keep the spam messages out of the network vote the proposals and are acted on the basis of the votes of the majority. The percentage required to achieve this majority may vary depending on the DAO as can be stated in the code.
Through DAOs, people can exchange their funds with anyone in the world. Without this mediation, it can be an investment, philanthropic donation, fundraising, borrowing, etc. A potentially huge problem regarding the voting system is that even if a security flaw is seen in the starter code, it can not be corrected until the majority vote is received. When voting happens, hackers can take advantage of the error in the code.