DAOs (Decentralized Autonomous Organizations) are becoming a craze globally and I predict it might become the next big thing in the blockchain space after NFTs(Non-Fungible Token). I could presume that you deeply understand what DAOs are but to avoid such a generalized assumption I will take you through what DAOs are in a bit.

Photo by 愚木混株 cdd20 on Unsplash

Background

Ethereum was founded by Vitalik Buterin, Anthony Di Iorio, Charles Hoskinson, Mihai Alisie & Amir Chetrit (the initial 5) in December 2013 with the publication of the whitepaper. What makes Ethereum particularly important is that it is a vital piece in understanding the era of commercialized use of blockchain technology beyond cryptocurrencies.

Prior to Ethereum, blockchains focused on solving problems related to currency and hence the first generation of the technology. Ethereum stretched its blockchain to allow for a novel concept called Smart Contract. These are computer programs that can be written and deployed on the blockchain to work just like every other piece of code. Smart Contracts are not smart and in fact, they are no different to ordinary programs the only difference being that they run on the blockchain. But since they are not the focus of this article I will explain them in detail in another article.

Why smart contracts are necessary to understanding DAOs is because they form an integral part of how the blockchain enables decentralization to work at an architectural level on a technology that does not allow a single entity to control exactly how things work.

Decentralization can exist at different levels so when we talk about decentralization a lot of times, we normally focus on the fact that the blockchain technology is a distributed database and hence from an architectural standpoint it is decentralized but is that really all there is to decentralization?

Let’s Talk Decentralization?

In blockchain, decentralization refers to the transfer of control and decision-making from a centralized entity (individual, organization, or group thereof) to a distributed network. Decentralized networks strive to reduce the level of trust that participants must place in one another, and deter their ability to exert authority or control over one another in ways that degrade the functionality of the network. __ aws.amazon.com

Decentraliztion is always a strong point everytime we talk about blockchains but beyond the especially strong point there are still aspects of centraliztion that are still a struggle.

First of all when we tackle centralization, we talk of companies like facebook, amazon, google etc who have control over their database, software, infrastructure and user data. A lot of times these raises privacy concerns. Concerns about how data is being used and how much of democratic control the users share in the network. These rising concerns made questions about distributed database systems to become pertinent, but until 2009 with the launch of bitcoin it was not pragmatic. What made this a novel solution for currency is because it allows us to trust that a single entity cannot decide exactly what happens in the system and this is especially important in finances because money as we know it is driven by trust and blockchain is a trust enabling technology because it supports a democratic approach to handling interaction.

But beyond that, decentralization of the technology is not enough. Other forms of decentralization exists and if blockchains and DAOs are to be totally decentralized then the other forms of decentralization must be fulfilled.

Forms Of Decentralization

There are different forms of decentralization worth considering as far as DAOs and Blockchains holistically are concerned. They are:

1. Architectural Decentralization.

2. Political/Social Decentralization.

3. Economic Decentralization.

Architectural Decentralization

Architectural decentralization is something I have already mentioned earlier. It the main form of decentralization mostly talked about anytime blockchains are being explained. It refers to how the ledger itself works. Today most of our technology is centralized meaning we have to somehow hope that maybe facebook, twitter or amazon is handling our data right. On the blockchain different nodes do the work of verifying and updating the state of the ledger and hence data is shared and it is difficult for a single actor to manipulate the state. Here trust is shifted from a third party to the technology itself.

Political/Social Decentralization

This refers to an aspect of decentralization that has to do with how democratized access and ownership on the blockchain is. For instance while we might say that the blockchain is trustless with several independent nodes, what stops a single individual or group from owning more that 50% of the nodes? of course we are seeing this increasingly happening. Where some whales like binance and other exchanges own a huge proportion of node. The technology might be decentralized but with the possibility of a few elite owning and controlling more then it could be an issue. What if they form a consensus and decide to game the system?

Economic Decentralization

This has a lot of meaning to it. But most importantly it refers to the barrier of entry or participation. How many people can afford to buy special machines, pay for hosting services, afford power etc to run stake pools, mining farms etc as the case may be. This automatically means that if it is difficult for people to get in, then the system is not decentralized from this standpoint and can easily default to point 2.

Regardless of however we want to look at it, a system must satisfy all 3 major aspects to be deemed truly decentralized and safe.

The Problem with DAOs

DAOs were a buzzword at some point. A position that was later overtaken by the metaverse and more recently chatGPT. The idea around DAOs is that we can build organizations powered by the blockchain that is completely democratic, managed by the community with no need for a leader or the bureaucracy of traditional organizations.

The truth of everything is that, even at the zenith of the DAO craze, no single DAO completely manifested that possibility.

The other equally important point is that in as much as these platforms talked so much about web3 and blockchain technology, their operations had very little or no part of it on the blockchain. In fact, the single web3 component were either some sort of utility or governance token.

Is it true that DAOs could revolutionize governance?

Well I think it could but not with the current framework.

I think DAOs would achieve more if it is built out as a governance mechanism to introduce accountability and transparency to organizations where it matters the most. But considering how irrational humans can be a totally leader-less system is quite an impossible utopia.

Maybe we could transcend into the era of total DAOs but that would mean a complete and total improvement to our current mechanisms. Until then DAOs are still yet to live up to it’s promise of Decentralization

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