[Image Source](https://res.cloudinary.com/practicaldev/image/fetch/s--I2v-Bdy5--/c_imagga_scale,f_auto,fl_progressive,h_420,q_auto,w_1000/https://dev-to-uploads.s3.amazonaws.com/i/fngstrugohrlb4rwomt6.jpg)
Can you imagine a way to organize yourself with other people around the world, without them knowing each other, establishing your own rules and autonomous decision-making, all through blockchain? Well, DAOs are making this possible and that's what I'm going to talk about.
### WHAT IS A DAO
The term DAO stands for Decentralized Autonomous Organization and can be described as an open source blockchain protocol, governed by a community without central authority. It is fully autonomous and transparent, where the basic operating rules are stipulated and executed in smart contracts. A DAO is governed entirely by its individual members who collectively make decisions of all kinds about the future of the project.
Both rules and subsequent actions are recorded in a blockchain, which cannot be violated thanks to a time stamp, which is immutable, and the distribution of information to network participants.
Participants in a DAO are not bound by a legal contract. They are encouraged by rewards in the form of native asset tokens that help them work toward a common goal.
### HOW DOES A DAO WORK
The backbone of a DAO is its smart contract, which can be programmed to perform certain tasks only when certain conditions are met. These smart contracts can be programmed to automatically perform typical business tasks. The contract defines the organization's rules and also maintains the project's treasury. Once the contract is active, no one can change the rules except by voting.
If someone tries to do something that is not covered by the rules and logic of the code, it will fail. And since the treasury is also defined by the smart contract, this means that no one can spend the money without group approval.
This is possible because smart contracts are tamper-proof once they go into operation. You can't just edit the code without people noticing, as everything is public. Once the rules are formally written in the blockchain, the next step is around funding: a DAO needs to figure out how to receive funding and how to grant governance.
This is typically accomplished by issuing tokens, which the protocol sells to raise funds and fill the DAO treasury. Governance happens through this native token, and anyone who acquires and maintains these tokens gains the ability to vote on important matters directly related to DAO.
No special authorities can modify the DAO rules; it is entirely up to the tokenholder community to decide. Once the funding period is over and a DAO is implemented, it becomes fully autonomous and completely independent of its creators and anyone else.
#### MOST EMBLEMATIC EXAMPLES OF A DAO
The Bitcoin Network can be considered the first decentralized and autonomous organization, coordinated by a consensus protocol that anyone can freely adhere to.
It provides an operating system that allows payments without a central intermediary and has been resilient to attacks and failures since the first block was created in 2009.
No central entity controls Bitcoin, which means that as long as people continue to participate in the network, only one
power outages around the world could turn off Bitcoin.
The protocol is consensual and works with a network of incentives, powered by governance rules linked to its token.
The Bitcoin Network can be considered the first decentralized and autonomous organization, coordinated by a consensus protocol that anyone can freely adhere to.
It provides an operating system that allows payments without a central intermediary and has been resilient to attacks and failures since the first block was created in 2009.
No central entity controls Bitcoin, which means that as long as people continue to participate in the network, only one
power outages around the world could turn off Bitcoin.
The protocol is consensual and works with a network of incentives, powered by governance rules linked to its token.
##### Other examples of DAOs
**MakerDAO**: protocol that emits the stablecoin $DAI, whose parameters are controlled by the holders of the network governance token - the $MKR. This asset can be acquired by anyone and gives voting power to govern the protocol.
**Aragon**: decentralized platform built on the Ethereum network that offers modules for creating and managing dApps, DAOs. The $ANT token allows its holders to control the Aragon Network.
**PleasrDAO**: DAO that collects various NFTs and invests in other assets. The group decided to purchase the only existing copy of the Wu-Tang Clan's "Once Upon a Time in Shaolin" album for an incredible $4 million.
**Nexus Mutual**: protocol that offers mutual insurance services to its members, without the need for a company to perform administrative tasks. Premium management and claims processing are automated through smart contracts that directly coordinate interactions between participants.
### REINFORCING THE CONCEPT
Imagine the following: an electric, driverless car that offers rides, like the Uber, but that works autonomously. Due to its initial programming, the car knows exactly what to do, given the variables it has to deal with. It finds passengers, transports them and accepts payments for their transport services. After leaving someone else, the car uses the proceeds to recharge at an electric charging station, using Ether, and as the cars earn Ether, the money goes back to the shareholders who invested in the entity.
### DAOs Ecossystem
### WHAT ARE THE ADVANTAGES OF DAOS?
An inherent advantage of DAOs is that they allow the building of fairer organizations than human-run ones. Most companies today have leaders who sometimes make one-sided decisions that affect the entire business. A DAO would make this kind of decision-making impossible since all stakeholders have joint control over how the company should operate.
**Globalization**:
members around the world can contribute, providing DAOs with lower barriers to entry.
**Transparency**:
voting, funding decisions and other actions can be viewed by anyone.
blockchain technology gives access to extremely secure and auditable information.
**Assertiveness**:
because the organization is run through code, there is less room for human error.
### WHAT ARE THE DISADVANTAGES OF DAOS?
**Slow decision making**:
by not having an authority figure in charge, decentralized organizations take longer to operate and can take a long time to reach a conclusion about existing problems. A potential problem with the voting system is that, even if a security hole is detected in your initial code, it cannot be fixed until a majority votes for it.
While the voting process takes place, hackers can make use of a bug in the code.
**Disagreements**:
when the community disagrees more sharply, without reaching consensus, it can split the organization in two.
**Token concentration**:
in some DAOs, the ones with the most tokens are the boss. In these cases, governance ends up being very similar to
traditional organizations and this is a common problem that still needs to be resolved.
### DAOS VERSUS TRADITIONAL COMPANIES
In traditional companies, all agents of a company have employment contracts that regulate their relationship with the organization and with each other. Your rights and obligations are governed by legal contracts and enforced by a legal system that is subject to the applicable law of the country in which you reside. If something goes wrong or someone doesn't do their part, the legal contract will define who can be sued and why in a court of law.
DAOs, on the other hand, involve a set of people interacting with each other according to an open-source protocol. Keeping the network secure and performing tasks are activities rewarded with the network's native tokens. Blockchains and smart contracts reduce transaction costs and provide high levels of transparency, aligning the interests of all stakeholders with consensus rules. Individual behavior is encouraged with a token to collectively contribute to a common goal.
Members of a DAO are not bound by a legal entity nor do they enter into any formal legal contracts. Instead, they are guided by incentives tied to network tokens and fully transparent rules that are written in the software. Unlike traditional companies that are structured from the top down, with many layers of management and bureaucratic coordination, DAOs provide an operating system for people and institutions who do not know or trust each other, who may live in different geographic areas, speak different languages ββand therefore are subject to different jurisdictions.
There is only one applicable law, the protocol or smart contract,
regulating the behavior of all network participants. The governance of DAOs is community-based, while the governance of traditional companies is primarily based on executives, boards of directors and investors.
The technology is still in its infancy, which means that a DAO offers great opportunities to create change and be at the forefront of blockchain technology. For those who witnessed the first DAO hack in 2016, the term can have a negative connotation. While there are still risks, DAOs have made great strides since then.
Posted Using [LeoFinance <sup>Beta</sup>](https://leofinance.io/@cryptosimplify/what-are-daos)
hiveblocks