Explaining a DAO like its a Vending Machine…
The advent of Web3 has really shaken up the internet and the crypto space. Its the coolest kid in town right now and you will have every 2nd social media profile buzzing with a bio like- Creating the next Metaverse, Web3 evangelist, NFT enthusiast, Crypto & Web3 scalability…blah blah bluh!
Amongst all this conundrum, the new entrants into the crypto space are left confused with all the jargons thrown here and there, and honestly that should not be the case. Web3 should be accessible to all under all circumstances and it should start with the layman language usage in education. In the article I will try to simply explain to you what is a DAO, with analogies, pros & cons. Keeping it simple… Lets begin
What is a DAO?
DAO stands for Decentralised Autonomous Organisation. Now that is out the way, I’ll explain the working mechanism through an analogy…
The above picture has two vending machines in the frame, no, DAOs were not inspired by Vending Machines nor is a Vending Machine a DAO. I will simply be using the example of a Vending Machine to the working framework of a DAO to help you understand better and with full clarity.
So how does the vending machine work?
- A machine installed at a location is loaded with the relevant stock (Chips, Soda, Chocolate…)
- A user can buy anything of their choice by putting in Cash into the machine & making their purchase
- The vending machine works smoothly as long as stock exists
- When the Vending Machine stock is over, a human worker will need to
- Take stock of the products exhausted
- Take the cash out of the machine & deposit it either with the operating company or an account
- Place order for new stock to put into the machine
- When said stock arrives, put the stakc into the machine at the corresponding slots.
Basically, the entire working mechanism of the Vending Machine is full dependent on a human being. In the absence of that Human Being, the entire Vending Machine is either useless or a piece of junk.
Now you can visualise the following:
- Vending Machine is the Organisation
- The human manager is the CEO
- The stock inside the machine is the product of the organisation
- The cash in the machine is Cash flow
This is where a DAO completely changes the game. Being a Decentralised Organisation, a DAO does not work on the traditional model of hierarchy. In a DAO, the users are the ones who dictate the future of the organisation, not a centralised head.
Lets take the example of Apple Inc. When an iPhone is close to launch, the marketing team needs to put forward their points in front of the CEO and on the approval of the CEO, the entire plan goes through the organisations hierarchical structure.
In a DAO, the voting rights belongs to the holders of a coin, usually referred as a Governance token. The holders of this token have voting rights with them, and any decision that would affect the working mechanism of the DAO would need to go through an approval process by voting. There is no centralisation of power in a DAO.
How does a DAO exactly work?
Simply put, A DAO works exactly like a smart contract. On the conception of a DAO, a code is already created that structurally cements the working mechanism of the organisation. As long as this code is valid, the DAO will continue to function without any hassles or bottlenecks. No managers and no CEOs.
In closing I would just highlight that DAOs are a super way forward as we transition into the multiverse of Web3 & as time passes, the opportunities it will create at various levels will be absolutely mind-blowing.
The only downside with a DAO would be its code being open-source and that will be a huge barrier to entry for the big corporate players who invest Millions & Billions of dollars on the Research & Development. I hope in time even they embrace this framework and we see a new dawn of Corporate reorganisation.
A huge shoutout to CoinDCX for selecting me in the #CoinDCXpathbreaker ambassador program and helping me share such educational content with all my crypto community members.