Tuesday 3 May 2016 5:30 pm

Introducing the DAO: The organisation that will kill corporations

Imagine a world where companies didn’t exist.

Instead of corporate entities being brought into existence through statute, networks of individuals would work, co-operate and generate wealth via DAOs – decentralised autonomous organisations. The hierarchical, centrally governed organisations we’re all so familiar with would not be needed.

This is the world that the creators of the DAO are trying to enable.

At the weekend, the DAO Hub was launched. Running on Ethereum, which offers a competitor to the bitcoin blockchain, it allows individuals to acquire tokens, which in turn let them join the first DAO.

Ethereum is increasingly the best-known blockchain in the distributed ledger world, because of how successfully it has allowed people to build and run smart contracts on it.

DAO token-holders can control its funds (denominated in Ethereum’s crypto-currency, Ether), vote on smart contract projects that come to it for funding, and get rewarded when those projects do well.

Voting rights will be proportional to the number of tokens a DAO member holds. DAO “contractors” – the people building the smart contract projects – will submit proposals to token-holders, who will then decide how much operational control they have of each project, and how much is left with the contractors.

Most of the time, it is likely that contractors will retain full control of projects, but will work to payments schedules enforced by the DAO – working a lot like venture capitalism in this respect.

In its first three days, the DAO has attracted the equivalent of nearly $14m. That number makes many crowdfunding platforms volumes pale in comparison.

Read more: This man just revealed himself as the secret inventor of bitcoin and blockchain

Because blockchain technology offers a decentralised system, it is difficult to predict what a given DAO might work on. But this is the point: each will facilitate network effects, so outcomes will be innumerable.

The framework for the first DAO – and the code that will sit behind any that are set up – has been developed by blockchain company Slock.it. Slock.it, which also runs on Ethereum, allows anyone to rent, sell or share their property without needing to rely on middlemen.

Despite being the DAO framework inventor, Slock.it has no guarantee that it will be accepted as a project to be funded by the DAO.

“It’s quite funny, actually. We’ve developed the framework that will (hopefully) eventually hire us. We’re just hoping that the token-holders will recognise the value of what we’re doing,” says Stephan Tual, founder and chief operating officer of Slock.it. “We’ve developed the protocol and made it available to the world. Now it’s up to the world what it does with it.”

So far, five projects are in the process of submitting proposals to the DAO for funding. The two publicly named ones are Slock.it and P2P electric vehicle firm Mobotiq. “We have already submitted our own proposal for the creation of the Universal Sharing Framework and the Ethereum Computer. Others such as Mobotiq are gearing up to take advantage of what will likely be the largest pool of Ether available to promising blockchain projects,” says Tual.

Read more: A US blockchain payments platform has set up shop in London

Legal questions

Because they are networks, DAOs do not have legal personality. While they can operate in the UK without legal personality, to enable projects that are funded by a DAO to legally interact with it – and operate internationally – the founders have registered DAO.Link in Switzerland, where you do not necessarily need to be a legal entity to enter into a contract.

The blockchain benefit

It also might not be immediately clear why building an organisation on the blockchain is useful.

Blockchain provides an immutable record of transactions and, increasingly, other forms of data. The more “nodes” (individuals on computers) in a network, the more robust that network is – because it becomes increasingly difficult to hack.

As Tual explains “if it was just on a big centralised server somewhere, it’s only a matter of time before the cost of attacking the system becomes inferior to the cost of what you have to gain. Because the blockchain is immutable, we’re not even asking people to trust it – there it is on the blockchain for them to check. If it says there are 1,000 shareholders and each have X tokens, that’s a fact. If it says they will have a vote every three weeks, there is no room for interpretation.”

And it’s worth reflecting, he adds, who DAOs could really help. If having a tech-enabled, decentralised organisation in jurisdictions with established legal structures for organisations could democratise investment, bring down costs for investors and recipient firms alike, and change our understanding of what a company can be, think about what it could do for individuals in countries where those structures aren’t in place.