What are Decentralized Organizations (DAO)?

Crypto companies work differently. Instead of one figurehead, anyone can contribute. Why do they do this and does it work well?

By Matt Hussey - Decrypt

Ever feel like your boss doesn't listen to you? It’s a common gripe at work. A new type of organization is changing that, with a flatter management structure. Decentralized organizations allow everyone to take part in discussions, encouraging teamwork. And they’ve created some pretty cool things.

What is a decentralized organization?

A decentralized organization is a business structure where control is spread out, across the team members instead of being centred around one authority figure. Most cryptocurrencies are created by decentralized organizations. They are often distributed around the world and work from remote locations.

How do they work?

Cryptocurrencies are often created as open-source code in a development platform called Github. Team members are able to:

• Write code that is publicly available
• Create proposals for developing the project
• Engage in discussions on other developments.

What advantages do they have?

There are several advantages to a decentralized organization:

• 🔥 More firepower - anyone across the world can contribute and add code
• 💵 Cheaper - A lot of developers contribute to cryptocurrencies in their spare time, meaning that coins can be created without large amounts of funding.
• 👨‍👩‍👦‍👦 Collaborative - Giving everyone a voice leads to a lot of discussions and foresight for each proposal, helping to develop the coin.

"Decentralized organizations are self-organizing, which is awesome for self-directed and swashbuckling individuals."

Jose Caballer, Culture Chef at ConsenSys.

What disadvantages do they have?

• 🏢 Flat structure - by not having a clear authority figure, or chain of command, decentralized organizations are slower to operate as decisions take longer to make.
• 😡 Disagreements - When the community disagrees strongly, it can often split the organization into two. This happened when Bitcoin Cash split away from Bitcoin.

What is a DAO?

A DAO is a decentralized autonomous organization. Code is written by a decentralized organization that provides some sort of governance mechanism. A DAO could be used to award funds automatically based on a set of criteria.

What was The DAO?

The DAO was one of the biggest and earliest examples of a DAO. It was created by Slock.it and was built on the Ethereum network. Its code was open source, which anyone could contribute to. The DAO was designed to work as a venture fund platform for crypto projects. A pitch would be made and anyone with DAO tokens could vote on projects to award funding. However, The DAO never made it to liftoff.

What went wrong?

On June 17, 2016, a hacker managed to exploit a few lines of code allowing the move of 3.6 million Ether, worth $70 million. Yet the funds were moved to a “Child DAO” and couldn’t be moved for 28 days, giving the Ethereum community time to make a fix. They made a hard fork to the chain now known as Ethereum, leaving the old fork, Ethereum Classic, behind. During this fork, they re-wrote the blockchain so the hack never happened, meaning the blockchain was no longer immutable.

"It raised massive awareness around the platform, became the #1 crowdfunded in the world, demonstrating unequivocally the need for a decentralized structure of this nature."

Stephan Tual, founder of Slock.it.

The future.

The cryptocurrency market cap has risen higher than $800 billion. That’s a lot of confidence in a market mostly created by decentralized organizations. Will it start to change the way that companies operate? Soon you might be working from home, having a discussion about the right way for your business to move forward without having a boss telling you what to do. The grass certainly looks greener.

Article produced by Matt Hussey - Decrypt