Beginners Guide to Blockchain VI: What is a DAO?

Article by @thechrispace

So far in this beginners guide to blockchain we’ve covered a lot…

  1. What is Bitcoin?
  2. What is Blockchain?
  3. What is Ethereum?
  4. What is DeFi?
  5. What is an NFT?

If you haven’t read those beginner articles, they are all 4–5 minute quick reads that will give you the very basics on these massively important concepts within the crypto world, just click on them and give them a read.

However, today we will talk about DAOs.

What is a DAO?

A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC) is an organization represented by rules encoded as a computer program that is transparent, controlled by the organization members and not influenced by a central government. A DAO’s financial transaction record and program rules are maintained on a blockchain. The precise legal status of this type of business organization is unclear.

Basically, a DAO is a new way to organize people around one subject, cause or goal using the blockchain as a way to track decision making amongst the group in a very transparent way.

Usually you have two types of DAOs: Open DAOs where you can join simply by joining a Discord Chat for example or by following the founders of the DAO and participating in their decision making process and then you have Token Gated DAOs where the founders of the DAO release a crypto-currency that belongs to the DAO and which is also known as a Governance Token.

Governance tokens can have plenty of different uses and benefits but the two most common are: 1) That they serve as a store of value. When the DAO’s work gets further recognition and generates wealth, the token value will go up, making its holders richer. 2) Governance tokens will provide its holders with voting rights on the DAO’s decisions. The more tokens you hold, the more you can influence on the DAO’s decision.

DAOs are easier to create than to implement in a truly functional way.

How to create a DAO?

You can right now create your first DAO using a tool like Aragon.org and an Ethereum wallet like Metamask — It’s fairly easy and I really enjoyed this video tutorial by Sarah Amann on how to do this.

Now how to run a DAO is something a little harder and there are some very crucial things you must consider:

  1. Having a DAO does not necessarily replace having a founder, founding team, an organization chart and paying people. Some DAOs might depend only on voluntary work of token holders but attempts at this have had very weak performance in the past (with some exceptions of course).
  2. DAOs have no “business secrets”, every move the DAO makes is available to members of the DAO and non-members of the DAO. Your DAO’s movements will be very easy to copy by competitors.
  3. DAOs can be hacked. A huge case of DAO hacking even led to the Ethereum chain creating a hard fork and evolving from Ethereum Classic to Ethereum. Read more about it here. Hackers stole $50M USD.
  4. Some DAOs have had trouble getting token holders to vote. If it’s hard to make a business decision with a live board of directors imagine having to make it by yourself at home. It usually requires time and effort to think about decisions and DAO founders have proven not to give enough context to holders, resulting in token holders not even voting.

DAO’s are an incredibly interesting part of the crypto ecosystem and we need to keep an eye out for them in the near future.

I hope you enjoyed this brief article and if you want the latest crypto-insights and more resources on everything crypto related, follow me on @thechrispace in Twitter and pretty much everywhere else.

Chris Pace.

www.thechrispace.com

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