We’re On Our Way to a Future of Decentralized Organizations

The concept of a Decentralized Autonomous Organization, more commonly known as a ‘DAO’ has been around since just after Bitcoin was released back in 2009.

DAOs involve implementing specific, pre-programmed rules that describe what can happen in a system and enforce the rules specified through smart contracts.

What Was The DAO?

In 2016 an official attempt at creating a DAO was made. This organization was known simply as “The DAO”.

The DAO officially launched on the 30th April 2016. By the 15th May 2016, it had already raised over $100m. By the end of the funding period, it had raised over $150m from a combined total of over 11,000 members. This was a far greater sum than its creators had anticipated.

It worked by allowing participants to purchase DAO tokens, which they could then use to vote with for the projects they wanted to fund.

In addition to voting for projects, participants also had the ability to vote on new rules, changes to existing rules, and even on whether or not to terminate the membership of a specific group member. This process essentially cryptographically guaranteed democracy.

One of the benefits of DAOs is that once implemented, the code cannot be changed or tampered with, meaning a single person doesn’t have the capability to change the rules the system goes by.

However, this also creates major security loopholes. For instance, if a bug exists within the code, developers will be unable to fix it. This is exactly what happened when The DAO project was hacked.

What Led to the Downfall of The DAO?

Unfortunately, there were several bugs within The DAO’s software. One of these bugs included the ‘recursive call’ bug which was clearly known to the company as one of The DAO’s creators had released a statement to reassure contributors that “no DAO funds would be at risk”.

While developers worked on addressing this issue, a hacker began to exploit this approach in order to drain The DAO of the Ether that it had raised from its token sales.

Within a few hours, approximately 3.6 million Ether - at the time, worth around $70m - had been drained from The DAO’s funds.

The DAO contained approximately 15% of all Ether, and so, the hack not only crippled their platform, but also had a negative impact on the price Ethereum as well. During this time, the price of Ether plummeted dramatically from $20 to under $13.

The decision of what to do after the hack was voted on by Ether holders. The outcome resulted in 89% voting for the hard fork. As a result, a fork occurred on July 20th, 2016. This cryptocurrency shares all of the data on the Ethereum blockchain up to block 1920000.

From this ordeal, we can learn some valuable lessons. In particular, it has shown us that while The DAO was a good idea in theory, there were many flaws in its implementation and so, future projects should take note and act accordingly. It is evident that rigorous security protocols will need to be added to future projects.

How Can We Improve DAOs?

image source: Unsplash

Despite the collapse of The DAO project, it’s becoming increasingly clear that DAOs are here to stay for the foreseeable future. Hundreds of teams are now working on building their own decentralized collaborative platforms.

However, one key element is still missing from these decentralized organizations: a governance system that enables decision making on a large scale. Such an organization would enable thousands, perhaps even millions of users to quickly make important decisions together.

DAOstack is one such platform that working on this. The application is essentially a decentralized operating system for DAOs that scales collaborative decision making.

It would allow thousands of open-source creators to come together and jointly produce their own decentralized applications (dApps). In addition, it would distribute individual ownership of the product to contributors of value.

Crowd curators would even be able to cooperatively own and manage multi-valued ranking systems that would compete with sites such as Yelp, Tripadvisor, and Youtube.

The future potential of DAOs is huge, and DAOstack could be the application to develop the foundational elements required to enable this transition.

Another similar platform set to improve the functionality of DAOs is known as Digix. The DigixDAO project has cemented itself as Ethereum’s first major Distributed Autonomous Organization.

The platform has introduced two tokens known as DGX and DGD. The purpose of the DGX token is to invest in gold, whereas the DGD token is primarily for investing in the DigixDAO platform itself.

This project enables users to purchase gold via an ERC20 token, known as Digix Gold Token (DGX) which means that the DGX token will be far less volatile than other cryptocurrencies, and that users will now have a stable place to store their funds without having to change them back into FIAT currencies.

Holders of the DigixDAO Token (DGD) will be able to vote on where funds are allocated. If a consensus is reached, then funds will be allocated to this use case. As it stands, DigixDAO could very well become the future of gold.

DAOs Could Change the Future of Work

DAOs are one of the fairest and most cost-effective business models ever invented. They remove the middlemen which are often some of the biggest weaknesses in centralized projects and, most importantly of all, ensure stakeholder interests are aligned.

There’s no doubt that they have the potential to completely change the future of work, and there is a seemingly limitless number of ways as to how they can be implemented to creatively solve some of our biggest problems.

An autonomous yet people driven future could be on its way sooner than many of us have anticipated. The only question is: which company’s will stand the test of time.