Decentralized autonomous organization
A decentralized autonomous organization (DAO), sometimes labeled a decentralized autonomous corporation (DAC), is an organization that is run through rules encoded as computer programs called smart contracts.:229 A DAO's financial transaction record and program rules are maintained on a blockchain.:229 The precise legal status of this type of business organization is unclear.
A well-known example, intended for venture capital funding, was The DAO, which launched with $150 million in crowdfunding in June 2016, and was immediately hacked and drained of US$50 million in cryptocurrency. This hack was reversed in the following weeks, and the money restored, via a hard fork of the Ethereum blockchain. This decentralized bailout was made possible by a majority vote of the blockchain's hash rate.
Decentralized autonomous organizations have been seen by some[who?] as difficult to describe. Decentralized autonomous organizations are typified as the ability of blockchain technology to provide a secure digital ledger to track financial interactions across the internet, hardened against forgery by trusted timestamping and by dissemination of a distributed database.:229 This approach eliminates the need to involve a mutually accepted trusted third party in a financial transaction, thus simplifying the transaction. The costs of a blockchain-enabled transaction and of the associated data reporting may be substantially offset by the elimination of both the trusted third party and of the need for repetitive recording of contract exchanges in different records: for example, the blockchain data could, in principle and if regulatory structures permitted, replace public documents such as deeds and titles.:42 In theory, a blockchain approach allows multiple cloud computing users to enter a loosely coupled peer-to-peer smart contract collaboration.:42
Vitalik Buterin proposed that after a DAO was launched, it might be organized to run without human managerial interactivity, provided the smart contracts were supported by a Turing complete platform. Ethereum, built on a blockchain and launched in 2015, has been described as meeting that Turing threshold, thus enabling DAOs.:229 Decentralized autonomous organizations aim to be open platforms where individuals control their identities and their personal data.
It can be difficult for a DAO to retain an attorney, or enter any kind of written contract because nobody in the company is interested in putting their personal name on agreements.
Shareholder participation in DAOs can be problematic. For example, BitShares has seen a lack of voting participation, because it takes time and energy to consider proposals.
The precise legal status of this type of business organization is unclear; some similar approaches have been regarded by the U.S. Securities and Exchange Commission as illegal offers of unregistered securities. Although unclear, a DAO may functionally be a corporation without legal status as a corporation: a general partnership. This means potentially unlimited legal liability for participants, even if the smart contract code or the DAO's promoters say otherwise. Known participants, or those at the interface between a DAO and regulated financial systems, may be targets for regulatory enforcement or civil actions.
The code of a given DAO will be difficult to alter once the system is up and running, including bug fixes that would be otherwise trivial in centralised code. Corrections for a DAO would require writing new code and agreement to migrate all the funds. Although the code is visible to all, it is hard to repair, thus leaving known security holes open to exploitation unless a moratorium is called to enable bug fixing.
In 2016, a specific DAO, "The DAO", set a record for the largest crowdfunding campaign to date. However, researchers pointed out multiple issues in the code of The DAO. The operational procedure for The DAO allows investors to withdraw at will any money that has not yet been committed to a project; the funds could thus deplete quickly. Although safeguards aim to prevent gaming the voting of shareholders to win investments, there were a "number of security vulnerabilities". These enabled an attempted large withdrawal of funds from The DAO that was initiated in mid-June 2016. However, after much debate, on the 20th July 2016, the Ethereum community arrived at a consensus decision to hard fork the Ethereum blockchain to bail out the original contract.
|Wikiversity has learning resources about Decentralized autonomous organization|
- The Decentralized Autonomous Organization and Governance Issues. Regulation of Financial Institutions Journal: Social Science Research Network (SSRN). 5 December 2017.
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creating an operational and autonomous Trust Framework [that can i]ntegrate with a secure discovery service in the form of a Decentralized Autonomous Organization asserting itself as a publicly accessible Portal Trusted Compute Cell (TCC) with APIs that... ...intended to provide a powerful new self-deploying and self-administrating infrastructure layer for the Internet, which gives individuals control over their identities and their data, and which enables the formation and self-governance of Decentralized Autonomous Organizations, Authorities and Enterprises to enable the creation and exchange of "digital assets."
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- "SEC Charges Bitcoin Entrepreneur With Offering Unregistered Securities". U.S. Securities and Exchange Commission. 3 June 2014.
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- Vigna, P. (16 May 2016). "Chiefless Company Rakes In More Than $100 Million". Wall Street Journal.
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- Popper, N. (27 May 2016). "Paper Points Up Flaws in Venture Fund Based on Virtual Money". New York Times.
- Popper, N. (17 June 2016). "Hacker May Have Taken $50 Million From Cybercurrency Project". New York Times.
- Price, R (17 June 2016). "Digital currency Ethereum is cratering amid claims of a $50 million hack". Business Insider. Retrieved 17 June 2016.
- Cimpanu, C. (June 18, 2016). "DAO Ether Trading Platform to Shut Down Following Ongoing Cyber-Heist - DAO creator says platform is shutting down". Softpedia.
- "Hard Fork Completed - Ethereum Blog". 20 July 2016.