Blockchain technology can pivot quickly, and it’s inspiring to see how far the industry has come since bitcoin’s debut about a decade ago. Before bitcoin, the financial sector was defined by its reliance on banks as trusted third parties, which ensured the safety and fungibility of our money but did so slowly and for hefty fees. Decentralized technology has demonstrated that the interests of multiple entities could be collectively aligned in a single system, instead of through banks, for example.
Less than a handful of years later, Ethereum has applied the same concept to areas outside of finance. Where bitcoin removed banks as middlemen between individuals and businesses transacting across borders, Ethereum’s smart contracts and tokenization model has disrupted intermediaries across virtually every industry. In cloud storage, for example, Ethereum smart contracts enable decentralized network participants to be paid in tokens for sharing their unused hard drive space. Participants can then use these tokens to pay for anonymous, distributed storage space from the network itself, thus cutting out cloud monopolies like Amazon Web Services or Google.
Smart contracts can even be set up for more mundane business like sending and paying invoices, but however efficient the new model is, there’s room for improvement. Unsurprisingly, blockchain innovators have already discovered a way to piggyback on the latest trend by producing its newest iteration: Decentralized Autonomous Organizations. Called DAOs, these complex smart contract structures may have the biggest impact on business of any blockchain breakthrough thus far.
DAOs are the Next Step
Smart contracts are extremely useful for automating transactional processes, and for reducing the input that humans must supply for relatively simple tasks. The goal of a Decentralized Autonomous Organization isn’t just to reduce human inputs—it’s to eliminate them entirely. Though still largely an on-paper idea rather than one that’s been perfected in practice, a DAO is effectively a business that uses an interconnected web of smart contracts to automate all its essential and non-essential processes.
Any business can benefit from a model with DAO-like ambitions. A novelty keychain store that keeps its inventory on the ledger can create a smart contract that triggers at each item’s specific reorder point based on historical customer demand. The smart contract will autonomously create an invoice for the store’s relevant supplier, send it and specify the date of delivery. When the shipment arrives, the smart contract will be notified using scanners or IoT beacons connected to the ledger, and execute the release of a payment in cryptocurrency. It can then pull customer information from a CRM system when orders come in, automatically print labels and help accelerate shipping.
This example covers just a few processes, but would potentially help the keychain merchant save labor costs and time. Employees are needed to keep track of inventory, create and pay bills, scan incoming shipments, and more. A DAO expands upon this example by automating all processes, not just shipping or invoicing, and it does so by stringing together multiple smart contracts in a complex web of ‘if, then’ statements. The final goal is an organization that requires no human input whatsoever and can not only function well but also make thoughtful changes to its structure without prompting.
DAOs on the Horizon
DAOs are the most cost-effective and fair business model ever conceived. They shore up the weaknesses of traditional centralized businesses but also of blockchain projects, with the former subject to central points of weakness, middlemen, and unaligned stakeholder interests. A true DAO has only a single interest to protect: that of the business itself. It requires no employees or executive managers, thereby providing a service without consideration of salaries, intermediaries, or even profits. Businesses can survive on the most razor-thin margins imaginable, and only need to cover the cost of existing—nothing more.
There are many blockchain leaders already working to bring the DAO revolution to real businesses. DAOStack is one of them, as it helps businesses create reliable crypto-economic incentives for individual processes under their purview. The goal is to replicate each business function as a smart contract so that no matter how much friction there is between stakeholders, execution of governance decisions (root-level changes to the business plan) can go off without a hitch. DAOStack takes it a step further by providing a full stack package for developers to build DApps and customers to access them with a simple dashboard, basically introducing a Wordpress-equivalent for blockchain DAOs.
Jelurida is another ambitious DAO project that’s a long time coming. The project began with the groundbreaking Nxt blockchain and eventually morphed into what is now known as Ardor—a Java-based platform for creating custom blockchains. It includes tokenization functionality, a marketplace connecting multiple blockchain services, a voting system, and other utilities required by a self-governing ecosystem. However, it avoids the typical blockchain bloat that plagues solutions like Ethereum by separating the ‘forging’ tokens (used for voting, block generation and more) from the transactional coins used to run smart contracts. This enables greater scalability by distancing the governance function from the transactional element.
The open source community has also jumped into the DAO game, with several notable projects coming to the fore. Aragon, for instance, is working to build a ‘plug-and-play’ company set up that could automate many of the initial steps in building a new business. Others, like Colony, are tackling different aspects of DAOs, such as corporate governance. Their platform removes the murkiness of corporate hierarchy and bases team members’ rewards on ‘systematic peer review’ that considers completed work and its quality when awarding tokens.
An Autonomous Future?
Companies using DAO platforms to compartmentalize and automate certain parts of their business can achieve fast scalability and be leaner without sacrificing quality of service. However, there are a few obstacles that make a true DAO difficult to achieve, for now. Access to technology like IoT beacons is still limited, meaning that an organization dealing with physical products will always require human labor until robots become cheaper and more accessible. Additionally, the idea of a self-governing system requires increasing degrees of complexity with each passing day. Businesses are not getting any simpler, and so a properly self-governing DAO has much more to consider when it comes to smooth, fair operation.
The onset of more accessible artificial intelligence will also be a tailwind for DAOs. While organizations which have gotten close to being considered DAOs still require users to vote on protocol changes, for example, an AI-based DAO will one day be preprogrammed to autonomously consider the preferences of millions of individual stakeholders simultaneously. While DAOs are still years away from complete autonomy, savvy businesses can already identify areas where inputs are excessive before applying DAO-component technology to streamline operations without fear that their livelihoods will fall to pieces.