Decentralized autonomous organizations (DAOs) are one of the most popular concepts in blockchain right now. Nor is it difficult to see why: with a decentralized organization, the decisions of a company or organization are not made by the same people as always, because everyone here has a voice. Employees, partners and users do the same, meaning that anyone who has an interest or involvement in an issue related to the organization will be able to vote on how it should be addressed. Of course, decentralized management is not without its difficulties, but there is also no doubt that this type of structure has enormous potential. In this article, we'll explain everything you need to know about DAOs, how they work, and a question we all ask ourselves: are they really decentralized?
Let's talk about DAOs
DAOs are decentralized autonomous organizations that operate using smart contracts. They are autonomous because shareholders have the capacity to vote on issues affecting the organization and are decentralized because it operates without a single point of control. In essence, a DAO is a blockchain-based organization that is owned and governed by its community of shareholders. This can include employees, customers, and even investors. DAOs have several advantages over traditional companies, such as greater equity, more traceability, lower operating costs and greater security. DAOs can be organized in a variety of ways, they can be fully decentralized, meaning that there is no governing body and anyone can join or leave the organization at any time. They can also be partially centralized, and the governing body has some degree of control over the organization's operations.
How do DAOs work?
To operate a DAO, the protocol creates a smart contract on the blockchain. This contract is basically the one that has control over the DAO and contains all the information related to its operations. The contract is programmed to operate on a decentralized blockchain, giving it full transparency and traceability. Anyone can join the DAO, either by contributing tokens or by transferring assets such as shares or property. When the DAO holds votes, all its stakeholders can make decisions based on their opinion on a certain issue, such as the issuance or not of a dividend, the payment of salaries or anything you can imagine. If the DAO issues tokens, the protocol allows the holders of these tokens to participate in the organization's future decision-making processes. In this way, token holders can vote on issues that directly affect the DAO.
The problems of DAOs and the ways to solve them
The biggest challenge faced by DAOs is managing economic incentives. In the absence of a centralized economic incentive, how are people encouraged to continue participating in a decentralized organization? This issue can be addressed by granting token holders the right to vote on important issues, such as making a large acquisition. This can help give people a sense of ownership over an organization, as well as a direct financial incentive to continue participating. Small security challenges must also be overcome, as DAOs are decentralized, there is no central point of control over the network. That's why we need to develop a fairly secure smart contract that can ensure that no one manipulates the network.
Are DAOs really decentralized?
DAOs are promoted as being decentralized, but the reality is that they aren't really decentralized. The protocol connects the DAO to a decentralized blockchain, but the real data is stored on the private Ethereum network. If the Ethereum network is attacked or compromised, so is the DAO's data. However, this is not a major concern in practice. Another fundamental debate that exists around DAOs is what happens at the time of a vote, since some organizations allow their participants to cast unlimited votes, this can cause some votes to be biased by the desire of a specific participant. One of the most recent cases was that of Mango DAO, where a hacker stole $100 million and created a vote stating that he could keep one part of the money and return another, if they did not press charges against him. The funny point of this story is that the hacker used part of the money he stole to cast 33 million votes for his proposal and that's how easy he managed to keep $47 million and save himself from a complaint.
DAOs are undoubtedly a new and exciting concept, but they will not be able to transform the business world unless they are able to overcome the challenges that currently arise. For now, a lot of work remains to be done, but it is quite likely that we will continue to see an increase in the development of DAOs in the coming years.
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