DAOs are making this a reality.

Recently, some DAOs have begun to attract the attention of more traditional investors, including billionaire Mark Cuban, who has called them “the ultimate combination of progressivism.” Venture capital firm a16z has also led multi-million dollar funding rounds in individual DAOs and companies supporting the creation of DAOs.

With Messari predicting that DAOs will be the "next megatrend" in the field, you might be wondering what exactly is a DAO?

Today, we will interpret it for you.

1. So, what is a DAO?

The full name of DAO is Decentralized Autonomous Corporations, which means Decentralized Autonomous Organization.

To understand DAOs, you first need to understand the technology behind them. Most DAOs rely on blockchain technology and smart contracts, which are collections of code that run on the blockchain.

We know that in traditional organizations, there is usually a hierarchy: a formal board of directors, executives or top management decide the structure and have the power to make changes.

Whereas DAOs are decentralized, meaning they are not governed by individuals or entities, the rules and governance of each DAO are encoded in smart contracts on the blockchain and cannot be changed unless voted on by DAO members. Members of each DAO can collectively vote on decisions, rather than a minority having a majority say, usually on an equal basis.

For DAOs, the blockchain can act as the backbone, maintaining the structure and rules on each chain. The birth of a DAO must have three basic elements:

DAOs are not new, but they are becoming more mainstream, so let's break down how they work and whether they are safe.

2. DAO operation and security issues

A DAO needs the following elements to be fully functional: a set of operating rules, funds such as tokens that the organization can use to reward its members for certain activities, and voting rights provided to establish the rules of operation. Also, and most importantly, a good and safe structure.

A potential problem with voting systems is that even if a security flaw is discovered in its initial code, it cannot be corrected before a majority votes. During the voting process, hackers can exploit vulnerabilities in the code to attack.

In May 2016, German startup Slock.it launched the creatively named "The DAO" to support their decentralized version of Airbnb. At the time, the crowdfunding campaign was a huge success, raising more than $150 million worth of Ethereum.

Unfortunately, there are certain issues with the code they use in the DAO. Inevitably, in  June 2016 ,  hackers attacked The DAO based on these vulnerabilities. The hackers obtained 3.6 million ETH, which was worth about $ 50 million at the time.        

This sparked a massive and contentious debate among DAO investors, with some proposing various solutions to the hacking problem and others calling for the permanent dissolution of the DAO.

The DAO at the time was built on the Ethereum network, using smart contract algorithms to ensure its governance structure and economic incentives. To thwart cyberattacks, the Ethereum blockchain underwent a hard fork, causing Ethereum to split into two different blockchains - Ethereum today, where stolen funds are withdrawn and returned, and Ethereum Classic, the original blockchain The blockchain continued to function and the hacked funds were never recovered.

This is still known as one of the biggest hacks in cryptocurrency, exposing the DAO's risks and eroding investor trust.

According to IEEE Spectrum, DAOs are vulnerable to programming errors and attack vectors. In fact, the potential consequences of this organizational structure are many, and investors fear that they will be held accountable for the actions of the DAO as a wider organization

3. How to use DAO today?

So far, DAOs have been used in many scenarios, such as investing, charity, fundraising, lending, etc. , all without the involvement of an "intermediary".

For example, a charitable DAO could accept donations from people around the world, and members could decide how to use the donations; a freelancer network DAO could create a network of contractors who spend their funds on office space and software subscriptions; venture capital The DAO can create a venture fund that pools investment capital and votes for venture capital, and the repaid money can be redistributed among the DAO members.

The last two years have seen renewed interest in DAOs due to the explosive growth of decentralized finance (DeFi).

What is the future of DAOs? As of mid-2020, the DAO as originally envisioned has not been revived. Still, interest in DAOs as a broader group continues to grow.

DAOs also need to overcome many potential regulatory and legal challenges, especially in the United States. There are still several unknowns about how the underlying legal framework in the United States affects DAOs and how they operate.

Despite the many lingering concerns and potential issues around legality, security and structure, some analysts believe this type of organization will eventually emerge and perhaps even replace traditionally structured businesses.

Despite the growing popularity of DAOs, there is still a long way to go to reach full mainstream adoption. With the continuous development of blockchain technology, "security" is the first priority. Chengdu Lianan has provided security audit and defense deployment services for more than 1,000 smart contracts, more than 50 blockchain platforms and landing application systems, and nearly 100 digital financial companies around the world. Eco-cast tougher "safety defense" shields.

Here, we must recommend a "weapon weapon" in this industry - Chain Biqin - smart contract formal verification platform VaaS.

This is a world-leading "one-click" smart contract formal verification platform launched by Chengdu Lian'an, which provides "military-level" security detection and verification for smart contracts. The detection accuracy rate is as high as 97% or more, and it can accurately locate risks. Code location and suggestions for modification, automatic detection of 10 major items and 32 minor items of conventional security vulnerabilities and functional logic defects in smart contracts, the world's first set to support Ant Chain, Tencent Blockchain, EOS, ONT, FISCO-BCOS, Fabric, etc. Security detection tool for multiple chain platforms.