Decentralized autonomous organization

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This article is about a type of business organization. For the similarly named specific organization which follows this approach, see The DAO (organization).

A decentralized autonomous organization (DAO) is a business organization that is run through rules encoded as computer programs called smart contracts.[1] A DAO's financial transaction record and program rules are maintained on a blockchain.[2][3] There are several examples of this business model. The precise legal status of this type of business organization is unclear.[4]

Background

Decentralized autonomous organizations have been seen by some as difficult to describe.[4][5] Nevertheless, the conceptual essence of a decentralized autonomous organization has been typified as the ability of blockchain technology to provide a secure digital ledger that tracks financial interactions across the internet, hardened against forgery by trusted timestamping and by dissemination of a distributed database. This approach eliminates the need to involve a bilaterally accepted trusted third party in a financial transaction, thus simplifying the sequence.[2] The costs of a blockchain enabled transaction and of making available the associated data may be substantially lessened by the elimination of both the trusted third party and of the need for repetitious recording of contract exchanges in different records: for example, the blockchain data could in principle, if regulatory structures permitted, replace public documents such as deeds and titles.[2]

Characteristics

Buterin proposed that after a DAO is launched, it can run itself, because smart contracts replace people.[6] Buterin has seen Bitcoin as an early example of a distributed anonymous corporation.[1] Ethereum, built on a blockchain and launched in 2015, has been described as another platform that enables DAOs.[6][7] Other examples of DAOs are The DAO and Digix.io.[8] A value token called DigixDAO finished its crowdfunding campaign and the token began trading on exchanges on 28 April 2016.[9][10]

Decentralized autonomous organizations aim to be open platforms for individuals to control their identities and their personal data.[11]

DAOs have been described as a system for crowdfunding.[12] A specific example, in 2016 The DAO, has set a record for the largest crowdfunding campaign to date.[5][13][14] However, shareholder participation in DAOs can be problematic; for example, BitShares is suffering from a lack of voting participation, because it takes time and energy to consider proposals.[3]

Issues

Legal liability

The precise legal status of this type of business organization is unclear; some similar approaches have been regarded by the U.S. Securities and Exchange Commission as illegal offers of unregistered securities.[4][15][16]

A DAO will functionally be a corporation without legal status as a corporation: a general partnership. This means potentially unlimited legal liability for participants, even if the smart contract code or the DAO's promoters say otherwise.[17]

Regulation and enforcement

Known participants, or those at the interface between a DAO and regulated financial systems, will be obvious targets for regulatory enforcement or civil actions.[17]

Technical

The code of a given DAO will be difficult to alter once the system is up and running, including bug fixes that would be trivial in centralised code. Researchers point out multiple issues in the code of The DAO, for example, a fix for any of which would require writing new code and agreement to migrate all the funds. Thus, the code is visible to all but hard to repair, leaving obvious security holes open to exploitation unless a moratorium is called to enable bug fixing.[18] The operational procedure for The DAO allows investors to withdraw at will any money that has not yet been committed to a project; the funds could thus deplete quickly.[3]

See also

References

  1. ↑ 1.0 1.1 Lua error in package.lua at line 80: module 'strict' not found.
  2. ↑ 2.0 2.1 2.2 Hal Hodson "Bitcoin moves beyond mere money." New Scientist. 20 November 2013. [1]
  3. ↑ 3.0 3.1 3.2 Lua error in package.lua at line 80: module 'strict' not found.
  4. ↑ 4.0 4.1 4.2 Nathaniel Popper "A Venture Fund With Plenty of Virtual Capital, but No Capitalist." New York Times. May 21, 2016 [2]
  5. ↑ 5.0 5.1 Lua error in package.lua at line 80: module 'strict' not found.
  6. ↑ 6.0 6.1 Lua error in package.lua at line 80: module 'strict' not found.
  7. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  8. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  9. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  10. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  11. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  12. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  13. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  14. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  15. ↑ Lua error in package.lua at line 80: module 'strict' not found.
  16. ↑ Andrew Hinkes for CoinDesk. May 19, 2016 The Law of The DAO
  17. ↑ 17.0 17.1 Lua error in package.lua at line 80: module 'strict' not found.
  18. ↑ Lua error in package.lua at line 80: module 'strict' not found.
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