What Is A DAO? An In-Depth Easy Guide for Beginners by Zelta

While the concept of decentralisation is slowly carving its way into mainstream stuff, it is bewildering to know that this concept is now helping run organisations on the blockchain totally by themselves!

These organisations are called DAOs and let’s have a look at them in detail.

What is a DAO?

DAO stands for decentralised autonomous organisation. In simple words, it is an organisation which runs on the blockchain in a decentralised manner.

DAOs are run by codes that have been agreed upon by the people who started the DAO in the first place or simply an internet community with a bank account.

Fundamentally they function on smart contracts (complex codes that are capable of self-improvement and fulfilling the required objectives) which determine who will be a part of the organisation and even make the DAO more sustainable.

Let’s understand this concept via a real-life example.

Let’s consider a supermarket shelf. The shelf has goods stocked and listed at a certain price. All a person needs to do is decide which item they want, pick it up and pay for it during checkout.

The entire process does not require a third party and functions independently.

But when the shelf runs out of goods, someone needs to first notice it and then restock it, the restocking is done by humans mostly. Thus even though the process was simple and independent it did require the intervention of a third party to continue to sustain.

In DAOs, the same process can be replaced with a smart contract thereby making it self-running and also self-sustainable.

If the same process were to occur in a DAO, the smart contract (or code) would alert the system when the shelf would run out of stock and then the smart contract would implement a function to restock it as well.

The code would also be capable of automatically checking and sending the status of the shelf along with helping the user cash out.

DAO vs Traditional Organisations

Now in a traditional organisation, there exists a board that conducts board meetings where they along with the shareholders meet and decide the course for the organisation forward.

The CEO is made aware of the decision and then it is his responsibility to make sure that the decisions are followed by a specified chain of command.

In a DAO, there is no CEO nor is there a chain of command. If a decision is made, the change is made to the running code thereby changing the entire organisation (functioning-wise).

With these smart contracts in place, the DAO is capable of self-improving and growing by itself. Although the growth is done by their own shareholding process or a “Governance.”

Read More about DAO's in our article "Governance In A DAO".