Understanding the Dao isn’t easy, especially without a PhD in computer science. Even the New York Times called the DAO “difficult to describe”. Most articles written about it can give you a headache. But the organization behind the most successful crowdfunding campaign to date ($150 million raised) is worth explaining and understanding, using terminology that doesn’t make your brain explode.
Cool, so what’s the DAO?Hold up…before you can understand the DAO, you need to understand the building blocks behind it. Lets start with the basics; first, you need to know what digital assets are. Simply, a digital asset is an asset that has no physical form, but has a physical value. The best examples of digital assets are cryptocurrencies (like Bitcoin, Dogecoin, and Etherium), which can be purchased but don’t have a physical form — they exist only in the digital world. The next concept is a blockchain. Super technical essays and articles explain blockchain in depth, but keeping it simple for our discussion: A blockchain is a public ledger of a digital asset’s transaction history. Each blockchain is made up of “blocks,” and each block contains a transaction record of the asset, tied together in sequential order. Since the ledger is public, there isn’t a single controller or bookkeeper tracking transactions. Instead, blockchains have miners, people who monitor transactions to look out for fraud, and are paid with the blockchain's digital currency (i.e. Bitcoin miners get paid with bitcoins). Last is a DAO, or a decentralized autonomous organization, one of the more confusing concepts to understand. Lets go word by word and simplify it:
- Decentralized: DAOs don’t have officers or board members that control the organization’s decisions. Like a democracy, users that “buy into” a DAO have control over some decision-making processes of the company. Users only have “some” control because of the next word in the acronym, autonomous.
- Autonomous: At its core, a DAO is a computer program that makes decisions based on its own rules, known as smart contracts. A simple example of a smart contract is a computer program used by universities that filters through applications, allowing only students with minimum GPA or SAT scores to reach an admissions committee. Although the committee makes final acceptance decisions, they don’t have full control of the process since they don’t see every application. Similarly, a DAO’s programing automates parts of the decision-making process — ranging from tasks as simple as filtering to complex contract negotiations.
- Organization: A DAO needs to have a purpose, and to have a purpose, you need money. DAOs need some sort of capital, usually a cryptocurrency, to do anything of substance. DAO members exchange cryptocurrencies for shares, or tokens, in the organization. Just like shareholders in public corporations, more shares equal more influence on decisions.