If you have been following the technical side of Ethereum and the development community behind it, you have probably encountered the “DAO” acronym a whole lot. It’s the notion of decentralization and autonomy that has fans and followers of blockchain technology drooling at the mouth right now. So what’s so great about it? Let’s figure it out!

What Is a DAO?

DAO stands for “Decentralized Autonomous Organization” and is the newest iteration in the world of smart contracts. A DAO can be many things. It can be an organization that operates autonomously, is self-managed, and does not need third parties. It's like a community-based company that is collectively owned and managed by its members. A DAO holds funds securely in that it's impossible to get access to them without the group’s approval. The decision-making process is voting-based, which allows everyone in the organization to have a voice.

Therefore, no chief executive can authorize spending based on their own personal whim, and it is impossible for the chief financial officer to "cook the books."

Advantages of a DAO

A distinctive feature of a DAO compared to other innovations in IT is that it is the only technology that is completely focused on management. In its essence, it embodies a new and innovative approach to corporate governance. DAO's have revolutionized the game into an entirely new management paradigm based entirely on smart contracts.

A DAO is built on smart contracts and is directly managed by them. The simplest control option is simply voting by members, whose votes are weighted in proportion to their contribution to the DAO. The DAO assumes full autonomy, and smart contracts exist in close coordination with the community of people. Since all parties to the contract are its co-owners (co-investors), then the condition of autonomy will be fulfilled.

The smart contract defines the rules of the organization and holds the group's treasury. It also allows individuals to gain membership and participate in the group's activities. Under the current smart contract system, no one can change the rules once the contract is live. If someone attempts to complete something that is not in the rules or covered by the code's logic, the program will fail. Thus, a DAO doesn’t need a central authority to make decisions collectively.

There are two features of the program recorded in the Blockchain that are integral parts of its transparent and safe system: the rules of the program and their subsequent actions. No outside party can manipulate the system because it is not subject to change and is built upon an immutable time mark that ensures the distribution of information amongst network participants.

Ethereum has compared DAO's to traditional organizations in the pic below, perfectly portrays its competitive advantages. 

source: Ethereum

Why is a DAO So Important?

If you're committing to something that involves money, you need a lot of trust in the people you work with. It's tough to have confidence in someone that you've only ever interacted with online. With a DAO, you don't necessarily need to place all your trust in someone else. You can trust the self-executing code, which is 100% transparent.

This is a way to scale up your business globally through reliable collaboration and an opportunity that opens a wealth of new markets to your company.

The Final Word

As its algorithms continue to be perfected, DAOs will likely be better managed every year, making traditional forms of management uncompetitive, and corporations that abandon DAO's significantly less efficient. Accordingly, in the future, the competition between companies will primarily lie in developing the most advanced algorithms for growing knowledge, finding optimal solutions, and encouraging participants (by which we mean investors) to get involved.

There is no doubt that big data, machine learning, neural networks, and the most cutting edge technologies will find new applications for DAO systems.