The Blockchain Democracy — DAOs, A New Organizational Structure
One of the main goals of the blockchain revolution is to transform the way we handle governance. While the idea of political governance might jump to mind first, there is a new interesting aspect relating to company and organizational governance, which can utilize decentralization and blockchain technology to create a new way these type of entities operate. This idea is called DAO, which stands for “Decentralized Autonomous Organization”.
Let’s start exploring this by thinking about traditional companies. They can come in different forms from gigantic organizations like Google or Facebook, to even your local, more modest, grocery store.
Traditional companies are controlled and governed by stockholders and can be either private or public. Private companies’ stocks are owned mostly by a few (or a single) holders while public ones are offered publicly in the stock market.
This model raises a few problems. The first is funding issues, currently, lots of private companies (mostly small businesses) are facing financial issues. This is because only a small portion of investors are allowed to invest due to the nature of strict regulations. For most businesses, the only option is to request loans from the banks which make the funding process extremely hard, inefficient and costly for the businesses.
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The second major problem is the hierarchical model businesses today work with. The traditional businesses are hierarchically structured from CEO, to a few management levels, to the simple “blue-collar” employees. This makes organizations vulnerable both because they depend on a single authority to make decisions and manage the company according to his own interests rather than the company’s interests.
DAOs are decentralized independent entities that exist and operated by their code. They are made using smart contracts and run on the blockchain. Ownership in a DAO is represented using tokens which are like stocks in regular organizations. Since DAOs exists on the blockchain, their work protocol and voting are completely transparent. So, for example, where Apple wouldn’t be able to secretly slow down older iPhone like they later admitted.
It is very important to understand the autonomous concept of DAOs. A DAO is similar to a regular corporation, it is a separate entity and has its own bank account (here it is cryptocurrency wallet) and ID number (the contact address). But the main difference makes DAO autonomous is that in contrast to regular corporations it is managed by itself (its code) rather than by humans (in the form of executive management, i.e CEO).
DAOs solve the first problem that was mentioned (fundraising) through tokenization. This is similar to company stock offerings as it gives you ownership on part of the company, but the benefit here is that it is a public offering and open for everyone. This way small businesses can enjoy the benefits of crowdfunding and the people get the opportunity to make investments without meeting minimum investment requirements. Essentially, investing in companies and opportunities, now becomes fair playing field open to everyone, not only high-net worth individuals or those with a strong network. A few more benefits are that it gives equal right to all token holders and it gives more liquidity and makes it easier to buy and sell stocks.
There are currently a few companies working on DAO frameworks like Aragon and DAO stack. They both work on creating the infrastructure to enable everyone to deploy, govern and interact with DAOs on top of Ethereum.
The concept of a DAO plays an extremely important role in the decentralization revolution, as they can truly make difference in the social economy and create much better economic models which will be beneficial for investors, shareholders, and customers alike.
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This guest article was written by Ben Kaufman, founder of BitCampus.io
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