A Dao and smart contracts
A short overview of “The DAO” hack. DAO vs “The DAO.”
DAO is an abbreviation for decentralized autonomous organization, which is an organization that exists on a blockchain with smart contract capability such as Ethereum. A purely financial blockchain network such as Bitcoin can’t have any organizations on it because it does not have a virtual machine that can execute non-financial code in the way Ethereum network can.
Bitcoin was the first blockchain network to gain mass adoption and become well-known, yet Bitcoin is only one application of blockchain technology and the technology itself has much broader potential and capabilities.
Just like blockchain technology itself, DAOs could be totally free, decentralized and transparent, which means that they would exist with zero corruption. Just like on the Bitcoin network it is possible to see a history of all transactions that have happened on the network since Satoshi Nakamoto started it in 2009, with a dao it could be possible to see everything that happened in the organization since its inception. All the decisions in such an organization could be occurring via free and open voting and because blockchain networks have a property of immutability, voting would be impossible to rig just like it is not possible to change the information about financial transactions on the Bitcoin blockchain and other financial networks.
A real-life blockchain example of a dao
A dao could also have no vertical hierarchy. Even today there are blockchains that allow users to fully participate in the direction of the network. DASH is one of such blockchains. When miners create blocks on the DASH network, a part of the reward goes into a special fund that works similarly to a conventional government treasury with the difference being that there is no government as such. Users on the network can submit proposals with ideas about network improvements. You can see the current proposals and the way the system works on the Dash Proposals Site here: https://dashvotetracker.com/ As of the writing of this article, some proposals suggest giving free lectures about DASH, others deal with technical matters such as conversions between various currencies and so on. The system is a true democracy, which means users can suggest projects that are important to them.
Once a user suggests a project, the project goes into voting. Only the projects that get the necessary number of votes get to the next stage. The final stage is the allocation of funds for specific projects and their implementation. Implementation on the network is done per-project, so that there is no favoritism and no politics that organizations typically have when they have tenured full-time employees.
In the future, blockchain networks could contain information with birth records, marriage records, buildings permits and more, making it possible to transact online without having humans verify records or type the information manually into a system in the way it happens today in many departments of motor vehicles and other government offices all around the world. Hospitals and health clinics could keep their records on the blockchain, taxi companies could operate fleets of autonomous vehicles, and the list can go on and on and on.
Smart contracts and the functionality behind Decentralized Autonomous Organizations
Decentralized organizations have become possible because of the introduction of smart contract functionality by the Ethereum network. This functionality currently exists on other cryptocurrency networks, too.
Smart contracts on the Ethereum network are computer code that exists in the form of “if/then… what else…” statements. The network also has a virtual machine that allows the network to execute the code in a decentralized manner, meaning that members of the ecosystem and not some central server execute the code. If you think about any transaction that you perform, you will realize that this transaction can be formulated as an “if/then sequence” similarly to how smart contracts operate on the Ethereum network.
Let’s say you buy a cup of coffee at a local coffee shop in the morning. What happens there is a transaction of the “if/then… what else type…”: if I tell you what coffee I want and how I want it and I give you a certain amount of money, then you will give me a cup of coffee. If you do not give me a cup of coffee or if there is something wrong with the coffee (for example, it just doesn’t taste right), then you give me my money back.
In essence, the statements above are a contract and with Ethereum network you can place contracts like this one on the blockchain.