The concept of DAO (Decentralized Autonomous Organization) has been known since 2013, when the co-founder of EOS, Dan Larimer, first mentioned the term. Currently DAO has become one of the most innovative Blockchain-based concepts. The main philosophy of DAO is to create an organization without the centralized control.
Simply DAO is a smart contract, where all rules are written in the source code instead of the piece of paper. All decisions in DAO are made in a completely democratic manner by the vote of its shareholders according to the previously established rules. These rules are adopted by all participants, at the moment of DAO creation. In other words, DAO does not have top-down hierarchy, there is no centralized power.
As said above, DAO works by using smart contacts (encoded rules) to automate all its essential and non-essential processes. The core idea of smart contracts is that they are open, transparent and immutable — once recorded it could not be changed.
All operations within DAO — transactions, offers, and voting (including results) — are stored in an open blockchain register. DAO uses native tokens that can be distributed between shareholders and be used to vote to make a particular decision, tokens give several rights and privileges within the environment, one of these privileges is to have the right to vote on certain matters.
Unlike traditional businesses with hierarchical (top-dawn) structure DAO provides an operating system for people and institutions that do not know each other, who might live in different countries and are subjects of different jurisdictions. Instead of legal contracts in DAO, all agreements are in the form of open-source code that is implemented by majority consensus of all shareholders. Once DAO is deployed it is totally independent from its creator and can not be powered by a single individual.
The creator of Ethereum, Vitalik Buterin said: “There are a lot of intermediaries that end up charging 20–30%, if the concept of decentralization takes off and does well, those fees are going to decline to almost zero”. Not everyone probably agrees with this potential change, but there is no doubt that a DAO is a business model of the future.