In Smart Contract, We Trust — How DAO Became The Cornerstone Of The Crypto World

By default, cryptocurrencies are created to be decentralized. This implies that neither the government nor any singular institution is in control. It is divided into several networks, nodes and computers. This is what makes cryptocurrency safe and viable as a means of anonymous payment as opposed to fiat currencies.

So, why exactly does a currency that is decentralized need a catalyst? This is the story of the DAO. Decentralized Autonomous Organizations have become the cornerstone of smart contracts, which in themselves are the fuel on which most crypto operations run.

How did DAO Get to this Exalted Position?

The concept of a DAO was first ideated in 2015 by a team called The team built a smart crowdfunding contract to raise funds for various Web 3.0 projects and startups, but they took it one step further by programming actual voting rights and ownership.

The DAO was an organization that was designed to be automated and decentralized. It acted as a venture capital fund, based on open-source code and without 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. The DAO was so powerful that as of May 2016, it held about 14% of all the ether that had ever been issued up to that point, as the Economist reports in the DAO accrue.

Many people might see the venture capitalist end of the DAO as a way to gain control of the venture; however, it operates on a different level. Rather than the control that owning shares gives an investor in a traditional company, in a DAO, you control the organization’s collected assets based on how many governance tokens you own.

But a DAO differs from traditional financial funds in more ways than just tokens vs. shares. A centralized venture fund will usually have the traditional hierarchical organizational structure that we all know: one person at the top as CEO in charge of making executive decisions, a CTO, a COO, then board members.

How a normal company works relative to how a DAO works

With a DAO, rather than buy shares, you would buy governance tokens and that would give you the ability to vote on how the process of governance and how rules are laid down. All of these processes are done via a smart contract.

DAOs and Smart Contracts

DAOs can come in all shapes and structures, but simply put, “a DAO is an internet community with a shared bank account,” Cooper Turley, an investor and builder of several popular DAOs, told CNBC that is “Basically, a small group of people come together to form a chat group, and then they decide to pull capital together, [typically] using an Ethereum wallet,” Turley says.

The wedlock of DAO and Smart contracts is a match made in heaven. When the connection comes into play, the entire scope of what a DAO is capable of comes into play. Since the DAO doesn’t have a particular leader or commander, smart contracts are the means through which actions get executed.

A normal organization has an article of incorporation that states the organization’s rules and how funds are to be divided; a DAO has a smart contract. The difference is that a smart contract cannot be altered once live.

Once the contract is live on Ethereum, no one can change the rules except by a vote. If anyone tries to do something that’s not covered by the rules and logic in the code, it will fail. And because the smart contract defines the treasury, no one can spend the money without the group’s approval. This means that DAOs don’t need a central authority. Instead, the group makes decisions collectively and payments are authorized automatically when votes pass.

Smart contracts were first proposed in 1994 by Nick Szabo, an American computer scientist who invented a virtual currency called “Bit Gold” in 1998, fully 10 years before the invention of bitcoin. Szabo is often rumored to be the real Satoshi Nakamoto, the anonymous inventor of bitcoin, which he has denied.

Szabo defined smart contracts as computerized transaction protocols that execute the terms of a contract. He wanted to extend the functionality of electronic transaction methods, such as POS (point of sale), to the digital realm.

Many people see smart contracts as being intelligent. In the grand scheme of things, anything that will power the blockchain must be powerful and superbly intelligent. However, this is not the case. Smart contracts are not exactly intelligent; at the base, they are simply sets of instructions that will be autonomously executed once all of the set factors and conditions are met.

For anyone to trust in DAO and indeed in the entire decentralized cryptocurrency environment, it is the same as trusting in smart contracts. Knowing that they are the lifeblood on which DAO runs. If you are looking at gaining some more insight into the internal workings of the DAO, this can get you up to speed.

As blockchain applications rapidly spread and continue to, smart contracts and DAOs continue to play a key role in the expansion of the crypto space. From blockchain transparency that puts it above the fiat line to the emerging blockchain-based gaming and esports activities, smart contracts govern every aspect of the DAO and indeed the blockchain.

Gamers and developers can now collaborate as the DAO facilitates communication and community gathering via rewards in NFTs and cryptocurrency payouts.

Criticism of the DAO

You would think that nothing could be better than the DAO with a decentralized approach. Not everyone thinks so. Though, at the early stage of the DAO, the MIT technological review opined that the DAO would end up as a dunce. That was in 2016 and it is pretty normal to have cold feet at the start of something so monumental, a venture that could change everything we have fundamentally held dear since the gentleman agreement sealed with a handshake to a legal binding with legal advisors present.

Just take a look at the two proposed investments featured on the DAO website. One is an Ethereum-based system that makes it easier to rent access to things like apartments and Wi-Fi hotspots. The other is a company building open-source electric trikes intended to be rented out consumer-to-consumer via the Ethereum network.

Much about the world would have to change for either project to succeed at any scale. Like so many ideas buzzing around the cryptocurrency world, DAO probably won’t live up to its own hype. Indeed, the DAO’s success at attracting funds can be seen as an indicator of a bigger problem facing cryptocurrencies.”

It is safe to say that such flippant statements have now been proven wrong as DAO continues to stand strong and supported. Around here, we trust entirely in the strength of DAO and the smart contracts on which they are built.

As we move to a stronger, bolder move of the blockchain and its use cases, we are confident in DAO as the cornerstone of the blockchain. In DAO and smart contract, we trust.



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