What is a Decentralised Autonomous Organisation (DAO)?

A Decentralised Autonomous Organisation (DAO) is an organisation that is run through protocols encoded as computer programs called smart contracts. They are also referred to as Decentralised Autonomous Corporations (DAC). Their financial transactions and program protocol records are maintained on the blockchain.

This organisation is similar to any organisation in the real world, but in the digital world the rules of a ‘company’ are not enforced digitally. DAO is like a cryptographic democracy, where stakeholders can vote to add new protocols, changing existing protocols or include/disclude a member among other such rights.

An example of a decentralised autonomous organization is The DAO. The DAO, intended for venture capital funding, was crowdfunded for 150 million dollars in June 2016. It was almost immediately hacked and lost 50 million dollars. This was reverted in the following weeks via a hard fork of the Ethereum blockchain. This decentralised bailout was made possible by a majority vote of the blockchain’s hash rate.

DAOs are hard to define. They are characterised as the ability of blockchain technology that provides a secure digital ledger to track transactions across the web. It plays a strict role against forgery by trusted time-stamping and by dissemination of distributed database. Trusted time stamping is the process of securely keeping track of the creation and modification time of a document, while a distributed database refers to a database in which storage devices are not all attached to a common processor.

The approach of a digital ledger against forgery removes the need to have a trusted third party mutually agreeing on the transaction. It also eliminates the need to repeatedly record the transactions with different contract exchanges. This simplifies all transactions. The cost of a blockchain transaction and the associated data reporting could be balanced out by the elimination of both the trusted party and the need for repetitive recording of contract exchanges in different forms of records. For example, in principle, the blockchain data could replace public documents such as deeds and titles provided the legal framework permits.

Daniel Larimer, co-founder of blockchain social platform Steemit, first proposed the concept of a “Decentralised Organized Company” in an article published in 2013.