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Crypto Guides

A Quick Introduction to Decentralized Autonomous Organization (DAO)

Introduction

The blockchain technology has been in the industry for quite a while. Cryptocurrencies were the first ones to experience the taste of blockchain technology. As years passed, many technologies were being prototyped using blockchain. Then came Decentralized Autonomous Organizations. Many blockchain geeks would already be aware of it, while the rest are still clueless about this concept though they’ve heard it. So, if you are still one of those who doesn’t understand DAO, then this article might help.

What is DAO?

The meaning of DAO lies in its name. DAO is an organization that is both decentralized and autonomous. Back then, it was only an idea but became practical with the assistance of blockchain.

As mentioned, DAOs are organizations that run in a decentralized and autonomous fashion. In other words, they operate without a centralized party that makes decisions. In fact, all the growth and profit are managed without any central authority. When it implemented via blockchain technology, they are bound to follow programmatic rules that are granted through consensus.

DAOs can, in fact, be related to mainstream companies, as both have predefined goals. However, the goals of mainstream companies can be altered and may not be enforced. But in the case of DAOs, the goals are digitally enforced, and hence no alteration is possible.

Let’s consider an example illustrated by Mike Hearn to visualize the concept of DAO. He objectified DAO to a driverless car that acts like a taxi. It charges the passengers as a rental. After the journey, the profits are used to fuel the car at the gas station. In the whole process, the car does not require any human effort to figure out what to do, as everything is programmed initially.

Key Features of DAO

The first feature is obviously the autonomous nature of DAO. This means that any outside forces cannot corrupt a deployed function. In addition, their open-source nature makes it transparent. This eliminates the doubt for a trusted third party. There are tokens of all transactions, which are used for rewarding. With the non-hierarchical structure of DAO, all the funding takes place only during development and is distributed equally.

The Reason of Existence

Apart from a predefined goal, DAOs contrast with other organizations. In the present world, every organization out there is centralized. So, the only reason for the existence of DAOs is to take advantage of a highly efficient, autonomous, and decentralized system of governance. If organizations work like the DAOs, then there would be no time wastage and effort from an intermediary to control the organization. Instead, all the work would be done by itself.

The Advantage Over Traditional Governance

Governance simply refers to the interaction between various entities based on specific rules and norms and on how they are regulated and structured. Every governance in a company follows a top-down approach. In such an approach, there arises issues and dilemmas. For example, an agent can make a decision with their own choice as a result would not affect them.

If the decision turns out to be risky for business and expensive, the one to suffer would be the principal (a higher position), not the agent from a lower position. But, with DAOs, the costs, as well as the principal-agent dilemma, would be reduced because DAOs utilize smart contracts and blockchain technology in its working.

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Crypto Guides

Understanding The Fundamentals Of Blockchain

Introduction

We have understood the basics of DLT in the previous guide. In this article, let’s see one of the most popular applications of DLT, which is known as the blockchain. Many say that the blockchain technology is the new internet. By allowing information to be distributed not copied and tampered, blockchain did create the backbone of a new type of internet. Initially, blockchain found its application only in digital currencies, but today’s tech has now found other potential uses for the technology.

Blockchain, a distributed ledger, is a time-stamped series of immutable records of data that is controlled by different nodes in the network and not owned by any single entity. The records are stored in blocks that are secured and bound to each other by cryptographic principles.

The blockchain technology is completely decentralized. There is no central regulatory body on the blockchain network. The ledger on the blockchain is shared and immutable. The information in it is open to anyone to access. Hence, the blockchain is transparent in nature, and everyone involved in the network is accountable for their actions.

How does the Blockchain function?

In a blockchain, information is passed from one source to another in a fully automated and secure manner. When a party makes a transaction via blockchain, the peers in the network create a block for this transaction, which is secured using cryptography. This block is verified by several nodes (computers) distributed across the network. Once the block is successfully verified, it is added to the chain. Each block in the chain has a unique record with a unique history. Falsifying a single record means to falsify millions of instances in the chain. This is virtually impossible.

Features that hold Blockchain Strong

There are three properties of blockchain technology, which have helped it gain widespread applause.

  • Decentralization
  • Transparency
  • Immutability

📌 Decentralization

Before the appearance of Bitcoin, the public was used to only the centralized systems. And the idea of centralized systems was simple. There is a centralized entity that stores user’s information. To get this information, the user must interact solely with this entity. The main drawback of centralized systems is the absence of transparency.

Imagine if the centralized system was taken out. Everyone in the network can now view the data. It simply eliminates the existence of a third party. The data now can be shared one to one without any intermediary. This will eradicate the costs to be paid to the intermediaries as well. And this system is referred to as a decentralized network, making it a great property of the blockchain.

📌 Transparency

Transparency is another property that makes blockchain much appealing. Some say that blockchain is transparent, while some say it is private. Though it may sound counter-productive, blockchain is both transparent and private. When a transaction is made between two parties, one cannot see ‘who’ has sent it to ‘whom.’ Instead, we will be able to see something called the hash of a transaction. And this will be visible to everyone. Hence, this brings both transparency and privacy in the blockchain.

📌 Immutability

The blocks in the blockchain are immutable. It is impossible to tamper with. Technically speaking, blockchain is a linked list whose structure contains data and a hash pointer to the next block, hence creating a chain. This chain makes blockchain immutable.

For instance, let’s say a hacker hacks block 3 in the chain and tries to change the data. But, a slight change in the block will affect the other blocks drastically. That is, a change in block 3 will change the hash stored in block 2. This continues up to block 1. This will change the entire blockchain, which is impossible. Hence, making blockchain immutable.

Above are just the primary properties of the blockchain. There are other beneficial properties too, which is the reason blockchain has still sustained and is developing at a rapid pace.

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Crypto Daily Topic Cryptocurrencies

The Future of Blockchain

Even though blockchain is mostly known for being the technology behind Bitcoin – and other cryptocurrencies, it is more than that. And yes, the revolutionary nature of cryptocurrencies is what makes cryptocurrencies stand out from other digital currencies. Blockchain is known for many things – but its immutability, transparency, and decentralization are what make it such an object of frenzied interest, research, and even apprehension from traditional systems.

Today, blockchain applications have transformed how things are done across multiple industries – from manufacturing, to supply chains, to identity management, to finance and countless others. Given that it’s still a young technology but with incredible potential, how does the future look? 

Blockchain: A Background  

The concept of blockchain was first ever mentioned by Scott Stornetta and Dr.Stuart Haber in 1991. In a white paper titled ‘How to Time-Stamp a Digital Document,’ the two discussed the idea of timestamping a document and linking it to the previous document in a manner that rendered it impossible to change the content of the documents. Essentially, this was the first idea of “cryptographically linked chain of blocks,” which is how we know the blockchain today. 

Of course, Bitcoin’s burst onto the scene and gave blockchain an impetus it hadn’t seen before.

However, in 2014, the conversation started shifting from Bitcoin and to the potential of its underlying technology. People began to realize blockchain’s potential for other uses, and the exploration of this idea kicked off. Blockchain 2.0 was now the next buzzword – referring to applications beyond cryptocurrency. Today, there are hundreds of blockchain applications already active, with even more being explored. 

The reason blockchain has gained so much traction is because it has brought out business-changing ideas in plenty of industries. It’s hailed for facilitating complete transparency, a peer-to-peer model of sharing information, and the unchangeable nature of its records. 

And its influence seems to be getting only stronger – to the tune that the International Data Centre predicts global investments on the technology to hit $11.7 billion in 2022. Blockchain solutions also feature in increasingly many companies’ agenda. 

What’s Holding Back Blockchain from the Mainstream?

For now, blockchain’s implementation faces many hurdles. These limitations have slowed it down – but only just, its mainstream adoption. It’s important to note that ‘slowed’ here is relative because, given the stakes, blockchain has, in fact made such an impressive showing. With that, let’s briefly look at some reasons why its implementation is still not full-throttle a decade later:

☑️ Cost – Most blockchain platforms consume too much energy compared with their actual transaction throughput, e.g., Bitcoin’s 7 per second and Ethereum’s 15 per second

☑️ Scalability – Partly due to the issue of low transaction throughput with blockchains, blockchains have just not attained the potential to serve many users

☑️ Data privacy – The public model of public blockchains is not very enticing to enterprises who would rather keep their sensitive data private (through projects like Hyperledger have made it their goal to solve this problem by developing private blockchains)

☑️ Insufficient blockchain knowledge – Blockchain solutions are still a novel and complex concept for the majority of people. Also, most organizations lack people who have an in-depth knowledge of the technology

☑️ Entrenched systems – most organizations see no reason to “fix something that’s not broken.” They have been working with established methods for so long and providing services to customers. Transitioning into fresh mechanisms can prove challenging.

Blockchain’s Development Trajectory

Despite blockchain being so promising, it’s still very much at the teething stage. Some people see it as not a technology issue, but an issue of breaking down barriers and collaboration between companies.  

And we already see this happening. Hyperledger is one example of a successful collaboration of organizations with the sole aim of pushing blockchain into the mainstream. With the coming together of more than 200 influential organizations spanning the blockchain, finance, manufacturing, academia, and more fields, Hyperledger is determined to ensure blockchain counts. Today the group has released about 15 projects, including blockchain projects, blockchain tools, and libraries, and so on.

Furthermore, many in the blockchain space contend that the technology is still struggling to break ground. However, the progress so far can’t be denied. 2014 was the year when Blockchain 2.0 became a thing. The next year we saw the introduction of an entire blockchain dedicated to smart contracts, one of the most touted and promising applications of the technology. Already, major industry players like Microsoft, UBS Group, and the BBVA group have already integrated smart contracts in their organizations – in various forms.

The year 2016 saw the explosion of more pilot projects. 2017 brought along with it more enterprise-level experiments, while 2018 and 2019 were the years we saw the crystallization of many projects and, ultimately, their application. 2019 has been the year of bolder forays into the blockchain sphere.

Blockchain: Thinking Ahead

Based on blockchain’s showing in the last few years, many experts think brightly of its future. The blockchain and its fellow distributed ledgers will soon become the preferred mode for many business transactions.

Forbes predicts that stablecoins – the “incredible manifestations of blockchain power” will find even more popularity. The publication also asserts that as fiat currencies falter, people will likely “turn to blockchain to safeguard their savings.” What’s more, it makes a strong case for blockchain’s future, saying it deserves to be applied to “better technologies” and that “those improvements are on the way.”

Author of “Blockchain Revolution” Don Tapscott calls blockchain a “platform for truth and trust” with “staggering implications…for virtually every aspect of society.” The technology, according to him, is revolutionary with “vast potential to change society.”

The Institute for Innovation Development notes that there are more than 50 industries already deploying blockchain, and that “this corporate activity and experimentation will increase exponentially.” It also foresees blockchain changing “how transparency and authenticity are derived” with all types of things – from food, to property ownership, to verifying memorabilia, to personal identification.  

Spencer Bogart of Blockchain Capital Blog sees blockchain’s development shifting from the “launching of insufficiently differentiated new chains to improving and building ‘up the stack’ of winning protocols.”  

The Future of Blockchain 

Blockchain is still experiencing “growing pains,” and thus, its potential is yet to be fully realized. However, given that it has already successfully penetrated so many industries, it’s likely a matter of time before it penetrates nearly every industry.    

Many people, from both within and without the blockchain community, acknowledge blockchain’s powerful potential to instill transparency in all aspects of the business. Dataversity says that the technology will “emerge as a savior for transactional integrity.”

Blockchain has also received support from higher-ups in the finance regulation sector. Former chairman for the US Commodity Futures and Trading Commission, writing for Coindesk, asserts that “emerging digital technologies” have “far-ranging implications for capital formation.”

The Future of Blockchain Companies foresees a blockchain era when businesses will easily exchange assets in a peer-to-peer environment without government interference or regulatory fear. If blockchain maintains its current level of trust, then the current lack of transparency and “lack of governance over personal data” will be a thing of the past. 

Conclusion

Blockchain is here to stay, and soon, we will be using it in our daily lives without even realizing it. And for the better – because, as stated many times in the article, this technology has the potential to revolutionize how we do things. And while blockchain’s development and adoption has been slow, we know its mainstream adoption is a matter of “when,” not “if.”