Learn the basics of DAOs and how they work

In the latest installment of Cryptopedia, viewers can get a concise and informative overview of Decentralized Autonomous Organizations or DAOs. Jackson DuMont of Coin-Crypto believes DAOs have the power to “completely transform the way work and social collaboration are organised.”

What makes this type of organization both decentralized and autonomous? The answer is smart contracts on the blockchain. Essentially, a DAO runs on the lines of computer code written on smart contracts that allow everyone to communicate in the same way.

DuMont described the three key steps required to launch a DAO. The first step is to create that smart contract. The second step is to determine how to receive funding and implement governance, usually by creating a token. Finally, the DAO is implemented on the blockchain.

The most popular use case of a DAO is crowdfunding. The pooled money is put into a smart contract that issues tokens to DAO members in return. Token holders, who own shares in the DAO, can then vote on how to spend the money and vote to nominate delegates.

In the case of ConstitutionDAO, members raised just over $49 million to purchase an original copy of the U.S. Constitution, but they were outbid at auction. Another example is Blockbuster DAO, which aims to raise enough money to buy Dish Network’s video rental brand and turn it into a streaming movie studio.

DAOs want to reduce the risk of poor leadership through horizontal leadership, or flat hierarchies that level the playing field of power. The scope is infinite and wherever a member is, everyone is bound by the same rules of the smart contract. Trust is in code rather than in people.

Related: $53 Million Raised For Assange Shows The Power Of DAOs

Of course, there remain risks and concerns about legality and safety. A notable example of a DAO gone wrong is The DAO, which was hacked for $50 million in 2016. A recent report claims to reveal the identity of the alleged hacker.

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