Table of Contents
Understanding DAOs: Decentralized Autonomous Organizations
Every organization has its leaders, right? Not necessarily. Blockchain technology, which underlies the cryptocurrency industry, is enabling the formation of decentralized autonomous organizations, or DAOs.
Keep reading to learn more about decentralized autonomous organizations.
What is a DAO?
Decentralized autonomous organizations are independently functioning organizations distinguished by their lack of centralized ownership or leadership.
DAOs use blockchain technology for all aspects of their operations, including processing transactions and making governance decisions. More specifically, DAOs use blockchain-enabled smart contracts that can be crafted for many different purposes and are self-enforcing. Most DAOs also support a native currency, which can be used to help align the interests of a DAO’s members and provide participation incentives.
How do DAOs work?
The governance of a DAO is decentralized. Smart contracts, which leverage the transparency and consensus protocols inherent in blockchain technology, are used to perform certain functions. These can include:
- Controlling access to the organization's treasury: Smart contracts can require consensus approval for any member of the DAO to access the organization’s assets.
- Making operational changes: DAO members use smart contracts to put forth proposals, which are then voted on by all stakeholders of the DAO. Stakeholders are typically owners of the governance currency used by that particular organization.
- Increasing transparency: Smart contracts make all rules and protocols known to every member of the DAO.
Decentralized vs. Centralized Organizations
Let’s dig into how DAOs differ from traditional, centralized organizations:
- Hierarchical structure: DAOs’ organizational structures are flat and fully democratic, whereas hierarchies typically exist in traditional organizations. Every stakeholder in a DAO holds equal authority. The lack of hierarchy in DAOs also eliminates the divide that exists between centralized organizations and their customers. In a DAO, individuals who use a service can also interact in its governance.
- Consensus decision making: DAOs make decisions by consensus, requiring majority approval for any change. Consensus is a familiar concept for blockchain tech, as a similar mechanism exists to verify blocks.
- Transparency and security: The use of blockchain technology enables DAOs to make every aspect of an organization more transparent and secure. Centralized organizations are often less transparent, and rely more heavily on systems of trust for security. Decentralization incorporates what are known as trustless systems, which means the system works without the need for or the implementation of trust.
- Automation: Many operational functions for DAOs, such as voting and spending, are automated via smart contracts. Centralized organizations tend to perform more of their operations manually once the decisions are made.
Here are some examples of DAOs:
- MakerDAO: This Ethereum-supported DAO is the organization that supports the cryptocurrency DAI. MakerDAO’s native token, known as MKR, is used to govern DAI. MKR token holders, in proportion to their MKR holdings, can vote on key protocol decisions and participate in the development of the DAI network. MakerDAO was established in 2014.
- MolochDAO: Another Ethereum-supported DAO, this organization was formed in 2018 to award grants to projects that advance the Ethereum ecosystem. The decisions are made on Moloch through a very simple proposal and voting design. Moloch research guilds use funds to research topics that would serve the Ethereum ecosystem.
This article is for information purposes only. It does not constitute investment advice in any way. It does not constitute an offer to sell or a solicitation of an offer to buy or sell any cryptocurrency or security or to participate in any investment strategy.
iTrustCapital is a cryptocurrency IRA software platform. It is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrustCapital is not affiliated with and does not endorse any particular cryptocurrency, precious metal, or investment strategy.
Cryptocurrencies are a speculative investment with risk of loss. Precious metals are a speculative investment with risk of loss. Cryptocurrency is not legal tender backed by the United States government, nor is it subject to Federal Deposit Insurance Corporation (“FDIC”) insurance or protections. Clients do not receive a choice of custody partner. The self-directed purchase and sale of cryptocurrency through a cryptocurrency IRA have not been endorsed by the IRS or any regulatory agency. Historical performance is no guarantee of future results.
Some taxes and conditions may apply depending on the type of IRA account. Investors assume the risk of all purchase and sale decisions. iTrustCapital makes no guarantee or representation regarding investors’ ability to profit from any transaction or the tax implications of any transaction. iTrustCapital does not provide legal, investment or tax advice. Consult a qualified legal, investment, or tax professional.
iTrustCapital makes no representation or warranty as to the accuracy or completeness of this information and shall not have any liability for any representations (expressed or implied) or omissions from the information contained herein. iTrustCapital disclaims any and all liability to any party for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising directly or indirectly from any use of this information, which is provided as is, without warranties.
© 2023 ITC2.0, Inc.
All rights reserved.