You probably know how a vending machine works. It acts as a middleman for your food craving; you pay the machine and it gives you whatever snack you buy. This advanced technology box -the vending machine, still needs humans to run it though. A human who pays the electric bill, a human who checks the box when it’s low.
When it’s low, there needs to be a human who restocks the box and when the purchase of snacks is being made, they need to be a human who collects the money from the vending machine; so even though this is a machine made without needing humans, it still requires humans to get it running. Now, this analogy can be in relationship with a DAO in the sense that, in every instance where a human is needed when using a vending machine, a DAO does the task. Keep in mind that these DAOs are being run by codes.
Let’s head straight to the definition of DAOs and all you need to know.
Meaning Of DAO
If you’re new to the world of cryptocurrency, you might be wondering what DAO is. DAO stands for Decentralized Autonomous Organization, and it’s a type of organization that’s run by code instead of humans.
What this means is that there’s no centralized authority making decisions—instead, everyone who participates in the DAO can have a say in how it’s run. And because DAO is run by code, they can operate 24/7 without needing breaks.
DAOs are often created using the Ethereum blockchain, as this allows for the creation of smart contracts. Smart contracts are essentially self-executing contracts, meaning that they don’t need a third party to enforce them.
Now that you know this, I’m sure you’ll be interested in the next subheading.
How DAOs Work
DAOs are created using a smart contract, which is a self-executing piece of code that lives on the blockchain. This smart contract contains the rules and regulations that the DAO will follow.
These rules can be anything from how the DAO is funded to how decisions are made. Once the DAO is created, it runs itself—hence the term “autonomous.”
There is no central authority that controls a DAO. Instead, decisions are made by the members of the DAO, who vote on proposals using tokens. The more tokens a member has, the more voting power they have.
This system of decentralized governance is what makes DAOs so powerful. By taking away the need for a central authority, DAOs can be run democratically and transparently.
Types Of DAOs
Just like ice creams, DAOs also have types. There are three different types of DAO: public, private, and consortium.
Public DAO: A public DAO is open to anyone who wants to participate. Anyone can contribute to the DAO, and anyone can vote on proposals.
Private DAO: A private DAO is only open to a selected group of people. Usually, these are people who have been invited by the creator of the DAO or who have been approved by the DAO’s members.
Consortium DAO: A consortium DAO is a hybrid of the two previous types. It’s open to anyone who wants to participate, but only a selected group of persons can vote on proposals.
You’re probably wondering why a DAO is needed instead of the regular traditional organizations that are commonly used by companies. Well sit tight and let’s dive in.
DAOs Over Traditional Organizations
Here are a few reasons why DAO is better than Traditional Organizations.
First of all, traditional organizations are often slow to make decisions because they have to go through a hierarchy of people. With a DAO, there is no hierarchy because everyone is equal.
Another reason is that traditional organizations can be corrupt. For example, if someone in a position of power wanted to embezzle money, they could do so without anyone knowing. But with a DAO, all transactions are transparent and recorded on the blockchain, so it would be impossible to embezzle money without everyone knowing.
Lastly, traditional organizations often have Central points of failure. For example, if the CEO of a company dies, the whole company could crumble. But with a DAO, there is no central point of failure because everyone is equal and there is no hierarchy.
If you’re still not clear on the difference between a DAO and a traditional organization, you should check this table out.
DAO
Traditional Organization
A DAO is decentralized. This means that there is no single leader or group of leaders making decisions for the whole organization.
In traditional organizations, decisions are made by the head of the various department in the organization.
A DAO is autonomous, which means that it can run itself without any human intervention. This is made possible by the use of smart contracts.
Traditional Organizations are different from DAO. Like all companies that are still stuck using the traditional method, tasks are being carried out by Humans.
DAO has no hierarchy. In DAO everyone is equal.
Hierarchy is a key component of a traditional organization. Here, there’s a level to which things are being done.
The last difference is that DAOs are transparent. All the data is stored on the blockchain, which is a public ledger. This
For Traditional Organizations, documents are mostly kept private, not made public for reasons best known to the organization.
Table 1.0: Difference between a DAO and a Traditional Organization.
Benefits And Drawbacks of DAOs
Often referred to as pros and cons or advantages and disadvantages, you’re about to learn what limitations are holding DAOs back and very importantly, the cutting-edge benefits of DAOs.
Benefits:
DAOs can help to promote transparency and accountability within organizations. When decisions are made democratically and everyone has a say, it’s harder for corruption to happen.
DAOs can also help to cut down on costs. When you don’t have to worry about things like rent, office space, or utilities, you can put more of your resources into other areas of your business.
Last but not least, DAOs can help to promote collaboration. When everyone is working together towards a common goal, it’s easier to get things done and make progress.
Drawbacks:
When it comes to DAOs, there are a few risks to be aware of before you dive in.
Because they’re decentralized, DAOs don’t have the same safety nets that centralized organizations do. This means that if something goes wrong, there’s no one to turn to for help—you’re on your own.
DAOs are often built on top of decentralized protocols like Ethereum, which means that they’re subject to the same volatility as cryptocurrency prices. So if the price of Ethereum goes down, the value of your DAO tokens could also go down.
Because DAOs are still a new and experimental technology, there’s a lot we don’t yet know about them. This means that there could be unknown risks that we haven’t even thought of yet.
Future Of DAOs
The future of DAOs– is well, not so sure. But one thing is certain: DAO is here to stay. And as more and more people learn about it and its potential, we can only expect to see it grow.
There are already a number of successful DAOs out there, and with each one that comes into existence, we get a better understanding of how this new model of organization can work.
As time goes on, we can expect to see more and more DAOs popping up, as well as more traditional organizations adopting elements of the DAO model. So whatever the future holds, one thing is for sure: DAO is here to stay.
However, there are a few different ways you can get involved with a DAO. The most common way is to become a member of the organization. You can also become a contractor or service provider for the DAO. And finally, you can invest in the DAO by buying tokens or coins.
So there you have it – everything you need to know about DAOs. Decentralized autonomous organizations have the potential to revolutionize the way we do business, and they’re well worth keeping an eye on, especially if you’re looking for a more democratic way to run things, DAO is definitely worth considering.
What do you think about DAOs? Are you excited about their potential? Drop your comments below and don’t forget to subscribe to our bi-weekly newsletter.
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