Decentralized Autonomous Organizations (DAO) have been one of these financial systems that have emerged as a result of blockchain technology. In the previous article entitled decentralized systems and their relationship with the blockchain, we explained how each of the types of financial systems work: centralized, decentralized and finally distributed, which are the most applied in terms of financial technologies of cryptocurrencies.
One of the fundamental ideas that Satoshi Nakamoto (creator of bitcoin) had when thinking about Bitcoin technology was to eliminate intermediaries in transactions, allowing users (investors and consumers) to carry out P2P transactions (peer to peer or person to person), without intermediaries and where could everyone have the same opportunities to participate.
What is a Decentralized Autonomous Organization?
A DAO (Descentralized Autonomus Organization) is the solution to this idea of Nakamoto, basically it is an organization directed by computer codes, where all those who invest or receive payments in tokens of this organization have the same possibility to choose the destination of their funds and even more, they can propose their own ideas that will then be voted on by the rest of the community. The highlight of this type of organization is that because it is designed with code, the rules can’t be broken, it simply follows a predefined pattern and the actions that have been programmed are carried out, always for the benefit of the community.
A very descriptive example of how this type of system works is a taxi: we could imagine that the car has no driver and goes out on its own in search of passengers, picks them up, takes them to their destination and with the money they get for this service he provides he goes to the service station and refills the gasoline he needs or goes to the workshop to repair the breakdowns he has.
Function of a DAO
So far it is easy to understand that in a DAO the decisions that are made about the economic benefits obtained by financial transactions correspond to all the members of the community, so the main function of a DAO is to control the funds that it obtains as profit for the mining operations and the investments of the owners of nodes, for the benefit of the common good or for some charitable action and even for some investment that could benefit the shareholders of the community.
How do DAOs work and where do they get their funds?
Each cryptocurrency or block chain has a defined structure within which there is a DAO totally independent of the others. In the previous article titled What is Dash? Knowing the operation of this cryptocurrency we already mentioned the financing method for this cryptocurrency in particular.
In this case the funds are obtained from a consensus in which 45% of the profits are for the reward of the miners, the other 45% is distributed among the members of the nodes and the remaining 10% is used as fund for the DAO that in turn decides in what to invest that capital by means of voting of its members.
Social action of the DAO
Many of the decisions that are made by the DAO with respect to the destination of their funds are for the benefit of the community in general, this is how we find financing of educational and sports projects, scholarships for outstanding students or with low economic resources, construction of works public such as hospitals and health centers, investments in cultural events such as theaters, community libraries, etc.
This causes people to be more and more in favor of the use of this type of technology and system of “decentralized governance” since everyone benefits fairly and can also place part of the profits for the benefit of society. Things that otherwise would not have a way to complete, such as the financing of entrepreneurs and new businesses.
What do you think about this topic? Did you know about the social action of the DAO for the benefit of the community?
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