What IS a Dao? Honestly, I didn’t know until I did some research, so now YOU don’t have to!
The DAO Concept Explained
First thing you need to know is a DAO is an acronym for Decentralised Autonomous Organisation. A DAO is an autonomous system run by programming code, written on a collection of Smart Contracts and – currently – based on Ethereum. How each specific DAO works however is determined by the developers. There is no really simple way to explain specifically how a DAO works because each one is different.
A DAO can have stakeholders who can vote to make changes to the Smart Contract the DAO runs off of. Stakeholders will own tokens and these tokens are used as votes. The best part is there is no hierarchical structure. However, the person with the most tokens will have the higher vote based off their accumulation of the token. These are available to anyone to purchase, meaning anyone can offer up a suggestion and improvement to be voted on.
The downside to the DAO model is that it is openly vulnerable to attacks. Because the code is public and anyone can see it, an experienced coder may be able to work out the code and change it in their favor. An example of this would be linked to THE DAO back in 2016, when about 2,000 investors pooled an estimated $150 million dollars. The wrong person got a hold of their coding and made off with an estimated $50 million from their hack. This is actually how Ethereum Classic came to be, co-existing with the Ethereum we know and love today.
The other “issue”, if you will, is that the codes are, in fact, public information. This means that people with complex coding knowledge can potentially find what specifically is making a token successful and replicate it and potentially improve it. Is this really that bad? Well, it can be if your token is the one being copied. This can potentially de-value a token.
There Are Advantages Too!
The benefits of a DAO are that it is trustless. No one can just change the Smart Contracts, nothing can shut it down without the majority vote (as per the tokens, remember?) no one’s vote is more important than any other token holder, including the government, developers, etc. And although it was listed above, the open-source plan of the DAO means that you can view exactly what they are doing and nothing nasty can be hidden.
Anyway! If I did get something wrong or confused here and you are more experienced than I am (which really wouldn’t be hard), please feel free to reach out to me on my socials! Feel free to drop a comment and share this article with your friends or community.