Decentralisation is one of the core attractive features of cryptocurrencies and blockchain technology in general. This means they are not controlled by a single institution like a government or central bank, but instead are divided among a variety of computers, networks, and nodes. In many cases, virtual currencies make use of this decentralised status to attain levels of privacy and security that are typically unavailable to standard currencies and their transactions. Inspired by the decentralisation of cryptocurrencies, a group of developers came up with the idea for a decentralized autonomous organization, or DAO, in 2016.
Key Takeaways
- The DAO was an organization created by developers to automate decisions and facilitate cryptocurrency transactions.
- In June 2016, due to programming errors and attack vectors, hackers attacked the DAO, accessing 3.6 million ETH.
- Digital exchange currencies de-listed the DAO token in September 2016.
How Decentralized Autonomous Organization Works?
The DAO was an organization that was designed to be automated and decentralized. It acted as a form of venture capital fund, based on open-source code but devoid of a typical management structure or board of directors. To be fully decentralized, the DAO was unaffiliated with any particular nation-state, though it made use of the ethereum network. It can be defined as an organization represented by rules encoded as a transparent computer program, controlled by the organization members, and not influenced by a central government. As the rules are embedded into the code, no managers are needed, thus removing any bureaucracy or hierarchy hurdles.
Why make an organization like the DAO?
The developers of the DAO believed they could eliminate human error or manipulation of investor funds by placing decision-making power into the hands of an automated system and a crowdsourced process. Fueled by ether, the DAO was designed to allow investors to send money from anywhere in the world anonymously. The DAO would then provide those owners tokens, allowing them voting rights on possible projects.
A DAO’s financial transactions and rules are recorded on a blockchain. This eliminates the need to involve a third party in a financial transaction, simplifying those transactions through smart contracts. The firmness of a DAO is a smart contract. The smart contract represents the rules of the organization and holds the Organization’s storage. No one can edit the rules without people noticing, because DAOs are transparent and public. Up to today we are used to companies backed by legal status, a DAO may perfectly function without it as it can be structured as a general partnership.
The DAO launched in late April 2016 thanks to a month-long crowdsale of tokens that raised more than $150 million in funds. At the time, the launch was the largest crowdfunding fundraising campaign of all time.
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