Problems with a dao. Introduction to the DAO.
Potential problems with decentralized organizations
A decentralized stateless organization that is being run on a computer network in a fully transparent way with all the participants of the ecosystem being able to vote on decisions may seem like a perfect solution to many of the world’s problems, but in reality such an organization would have a set of problems that people have not yet figured out how to solve.
The first obvious problem would be the legal status of such a stateless entity in various countries. The current legal framework in most countries around the world simply does not have a description or an approach that would allow it to deal with something that does not have an owner and can operate on its own.
The second problem is a corollary from the first problem. This is the problem of risks and compliance. This is the same problem that many banks and other kinds of financial institutions are dealing with today when it comes to cryptocurrencies and blockchain technology. Banks know that blockchain could bring them a lot of benefits, but the banks exist in a heavily regulated environment. In turn, this environment exists to protect the customers so that when a person or a company opens an account with a bank or a financial brokerage, they know that the person or entity taking their money will not disappear with the money tomorrow. Because of this, an entity such as a bank is not currently going to do any business with any stateless network that doesn’t belong to anyone. It will only deal with parties where liabilities are clear and all documentation is compliant with existing laws.
The third problem is voting itself. The statement “everybody will be able to vote and the technology will always accurately count the votes” sounds great, but the reality can be much more complicated than this. For example, in certain countries and societies people do not believe that voting is important because they have been living under dictatorial corrupt governments for decades. Such countries would typically have elections, but the elections would be rigged and convincing someone that there is new technology and explaining the technology is a task that could take a long time. Other countries still have kings and ruling dynasties, so elections may look very different.
Also, what would happen if someone doesn’t have access to a computer, gets sick, doesn’t understand what the election is about, and so on, and so on.
The final problem with decentralized organizations has to do with changing the software code of an organization. Having a code running on blockchain is great because of transparency and independence, but what if there is a bug in the code that needs to be fixed? Who will fix the code if nobody can be altering the code and voting needs to happen prior to that? Voting may take a long time and the bug may require urgent fixing in the way it needed fixing during the problems with “The DAO” project on the Ethereum network.
“The DAO” is different from a dao in that a dao is an organization and “The DAO” was a name of a project that promised to create a decentralized organization running a venture capital fund on the Ethereum network with investors making decisions about where the money in the fund should go. With “The DAO,” anybody would be able to pitch an idea to the fund in a way similar to how users on the DASH network can submit proposals for voting and then everyone would be able to vote on the proposals.
“The DAO” was also planning to create a way for both commercial and non-profit organizations to run on blockchain networks using smart contracts and truly democratic voting. Such organizations would be stateless, which in itself was a subject for many debates, especially in light of code being able to operate on a computer network without any human interference.
The code of the project was open-source and the project did not have a conventional board of directors just like foundations it was promising to build would not have regular boards of directors.