DAO are the organizations running in the software in a fully democratic way. Before we jump into how exactly they work we need to quickly go through the tradition organization structure.
An organization is the group of people working on a common interest. This is most of the time is to make money for the shareholders. The organization follows certain rules which are governed by the Government of the place where the organization has been incorporated.
An organization has the group of shareholders who represent the ownership of the organization in the percentage format. Let’s say a person X own 3000 shares of the organization which has in total 30,000 issued shares then Mr. X will become 10% owner of that organization. These shares can be transferred to anyone which will, in turn, transfer the ownership of the organization. Share holders appoint a Board of Directors who control the major key decision of the organization. This group of people also known as Board of Directors appoints the CEO who execute the day-to-day operation by hiring more staff under him.
The rules & regulation of running the organization are generally written in Bylaws or Memorandum of Article, Article of Association. This might be called something else in your country.
DAO are just the digital version of the above arrangement where all rules & regulation are written in the source code rather than the piece of paper. They are executed by thousands of people/computers together through some consensus-based algorithm. The platform where the DAO runs is called Blockchain. The most common case where the DAO can be written is Ethereum Blockchain. In Ethereum, they are generally written in Solidity Language.
In the DAO, Each action or vote is represented by some form of transaction in the Blockchain. Here the members are represented by the address (in Ethereum, It’s Ethereum address). These addresses can be owned by a human, a robot, an IOT device, or even another DAO. Making it ideal for a fully automated system to run the full-fledged organization.
Each member is given a token which represents the shares of the DAO, these tokens can also be used to vote in the DAO to take a certain decision. The token is nothing but another kind of contract sunning on top of Blockchain. The more token an address has the more control he will have on the DAO.
Each member will have the rights to submit the proposal to take certain decisions. These decisions can be:
- Fire the CEO or just Change the CEO
- Hire a vendor to get his/her service
- Hire a lawyer
- Pay certain ethers/USD to someone as a salary or bonus
- Issue the share to someone because that person/address is adding more value.
In the DAO, since this is nothing but a democracy which is running in the Blockchain the voting power can be optionally delegated to someone to whom a member trust more. This just like voting by proxy in the real organization.
The DAO can also raise fund through some crowd sourced funding by issuing the tokens/shares to anyone who is paying the money to the DAO. This payment and issuing the shares/token can be done in real time unlike the more than 60 days process in the real organization.
In the world where the Artificial Intelligence, Machine Learning & IOT are taking over the human this kind of democratic arrangements can add a lot of interesting features which we can not even realize right now. Also running in a fault tolerance platform, in a decentralized platform gives it a high strength in doing things which are more innovative than anything e have ever seen till now.