The Cheat Sheet

A corporation in code

JINOY JOSE P | Updated on January 20, 2018 Published on May 18, 2016

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Really?

Well, virtually, to be precise.

Virtually?

Hm..., as things stand now, it’s all happening only in the virtual world, or the web. The case in point is a crowd-funded ‘corporation’ called The DAO — Decentralized Autonomous Organization — which is making headlines for the very nature of its inception and operation. It is the world’s biggest crowd-funded project, with nearly $140 million in its kitty.

A startup?

Not exactly. You may call it a virtual VC (venture capitalist) as this is a system of software that fund startups based on votes from its more than 18,000 members.

Interesting...

Some experts say this model can be a new paradigm of economic cooperation, terming it “digital democratisation of business”. In English, this means this entity puts forward a corporate governance model that is participatory and one that strictly adheres to principles of democracy, unlike traditional corporations, all on a digital platform.

So, is the DAO strictly an online entity?

Yes. It is a corporation whose bylaws are written in code, not in word. It runs only on the Ethereum platform.

Ethereum?

It is a decentralised platform where you can run applications exactly as programmed. It won’t allow for any instance of fraud, censorship or third-party interference. Here, users can engage in peer-to-peer contracts using a cryptocurrency called Ether.

Like Bitcoin?

Bingo! Ether is like Bitcoin. So, at the DAO, memebers contribute in this digital currency and in return they receive DAO tokens. They can use these token to vote on how the company should operate. The strict, code-laws make sure these votes are not fudged or manipulated.

You mean these token holders control the DAO’s all assets and actions?

Yes. Isn’t that cool?

Sounds good. But how exactly does it operate?

If you want to build a project, you can submit the idea as a proposal in word and a smart contract code. If the proposal meets the conditions the members have agreed upon, the code will automatically execute payments.

No central authority for decision making?

You said it! As the entire system is built on Ethereum, where code-enabled smart contracts can work flawlessly, all these funding operations are done autonomously. Decision-making is controlled by the code.

So the code takes over the cerebral?

Essentially, yes. But it’s not something to be panicked about. Just as Big Data heralded the death of the Subject Matter Expert and how correlations started playing a big role in decision making, with ideas such as the DAO, we allow algorithms to take decisions on day-to-day spending matters and even governance issues — quickly and seamlessly.

But will this ever go mainstream?

Your guess is as good as mine there. As you know, cryptocurrencies and blockchain technologies have a long way to go. Bitcoin and Ethereum today command market caps of $7 billion and $976 million, respectively. This popularity shows many people think they will be used widely in immediate future. But many think the DAO won’t be that smart and may make bad investment decisions.

Why?

Cherrypicking startups to invest is different ballgame where even experts VCs fail. So, DAO members, who are unlikely to have that kind of expertise, will end up choosing things that they know well about -- projects that are related to Ethereum. And that’s exactly what happening now. But, surely, DAO is an idea whose time will come, sooner or later.

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Published on May 18, 2016
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