Decentralized Autonomous Organizations

Just like DOs, a Decentralized Autonomous Organization (DAO) is also a computer program that runs atop a blockchain and embedded within it are governance and business logic rules. DAO and DO are fundamentally the same thing. The main difference, however, is that DAOs are autonomous, which means that they are fully automated and contain artificially-intelligent logic. DOs, on the other hand, lack this feature and rely on human input to execute business logic.

The Ethereum blockchain led the way with the initial introduction of DAOs. In a DAO, the code is considered the governing entity rather than people or paper contracts. However, a human curator maintains this code and acts as a proposal evaluator for the community. DAOs are capable of hiring external contractors if enough input is received from the token holders (participants).

The most famous DAO project is The DAO, which raised $168 million in its crowdfunding phase. The DAO project was designed to be a venture capital fund aimed at providing a decentralized business model with no single entity as owner. Unfortunately, this project was hacked due to a bug in the DAO code, and millions of dollars' worth in Ether currency (ETH) was siphoned out of the project and into a child DAO created by hackers. A hard fork was required on the Ethereum blockchain to reverse the impact of the hack and initiate the recovery of the funds. This incident opened up the debate on the security, quality, and need for thorough testing of the code in smart contracts in order to ensure their integrity and adequate control. There are other projects underway, especially in academia, which are seeking to formalize smart contract coding and testing.

Currently, DAOs do not have any legal status, even though they may contain some intelligent code that enforces certain protocols and conditions. However, these rules have no value in the real-world legal system at present. One day, perhaps an Autonomous Agent (AA); that is, a piece of code that runs without human intervention, commissioned by a law enforcement agency or regulator will contain rules and regulations that could be embedded in a DAO for the purpose of ensuring its integrity from a legalistic and compliance perspective. The fact that DAOs are purely-decentralized entities enables them to run in any jurisdiction. Thus, they raise a large question as to how the current legal system could be applied to such a varied mix of jurisdictions and geographies.