The Tao of “The DAO” or: How the autonomous corporation is already here

A new paradigm of economic cooperation is underway — a digital democratization of business.

Over the past couple weeks a project with no mainstream press has become the second biggest crowdfunding project in history. It’s not crowdfunding a product, an artwork, or a new cryptocurrency. It’s crowdfunding — or more accurately, crowd-founding — a corporation called “The DAO”. This is a corporation whose bylaws are written entirely in code.

But not quite. Wikipedia defines a corporation as “a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law.” While The DAO is a group of people authorized to act as a single economic entity, no governmental body recognizes it as such.

Rather, it’s given it’s authority purely through code. The DAO is a decentralized autonomous organization. It, as of the time of writing, controls over $100 million in assets, and yet it exists entirely on the Ethereum blockchain.

In exchange for supporting The DAO financially (in the form of Ether), backers get DAO tokens, which they can then use to vote on the direction of the organization. They can use their tokens to vote on big governance issues (akin to traditional shareholders) but also on minute details of how The DAO spends its resources. In this way, token holders have total control over The DAO’s assets and its actions.

People with projects they’d like to build for The DAO can submit ideas in the form of a proposal written in plain English accompanied by smart contract code. The code automatically executes payments so long as certain agreed upon conditions are met. Because this is all built on top of Ethereum, which allows for robust smart contracts, this can all be done autonomously.

Image courtesy of Seth Bannon.

As an example, one popular proposal by the company Slock.it is to build for The DAO a “universal sharing network.”

This network would essentially be the technical backbone for the decentralized sharing economy — imagine that being able to accept payments from renters and unlock accordingly was a function of a lock itself.

Under the proposed arrangement, Slock.it would be contracted to build this infrastructure, but The DAO would then “own” the end product. The DAO could then charge a percentage fee for every transaction processed over this network, thereby returning profits to DAO token-holders in the form of dividends.

In this sense, The DAO is something entirely new. It’s something between a traditional corporation, a VC fund, and a Kickstarter — only entirely decentralized, democratic, and existing only in code.

Because of this, the DAO is a paradigm shift in the very idea of economic organization. It offers complete transparency, total shareholder control, unprecedented flexibility, and autonomous governance.