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Decentralised Autonomous Organisations UPSC NOTE

 What is Decentralised Autonomous Organisations

  • DAOs represent a groundbreaking innovation at the intersection of blockchain technology and governance

  • These digital entities operate without centralised control and are governed by smart contracts.

  • The consensus of their members, often utilising cryptocurrencies as a means of decision-making and resource allocation

  • DAOs have garnered attention for their potential to change various industries, including finance, art, and governance, by fostering transparent, democratic, and self-executing systems

  • These entities are not only reshaping traditional business structures but also challenging the way we perceive trust, governance, and collaboration in the digital world.

  • DAO is an organisation represented by rules encoded as a computer program that is transparent, controlled by the respective organisation members.

  • DAOs are not influenced by a government. 

  • The idea behind DAOs is to create self-sustaining, community-driven entities governed by smart contracts on blockchain networks

  • These smart contracts automatically execute predefined rules without the need for intermediaries, ensuring trust through code rather than traditional authorities. 

  • One of the most important aspects of DAOs is their potential to change the idea of collaboration

The various use cases

  • DAOs are already making their mark across diverse industries. 

  • In the realm of decentralised finance, platforms like Compound and MakerDAO have introduced lending and borrowing services, enabling users to participate in the global financial ecosystem. 

  • In the art world, artists are tokenising their creations and utilising DAOs to manage royalties and maintain control over their intellectual property.

  • Supply chain management is another arena where DAOs are gaining traction, as they offer transparency and traceability in global supply chains, ensuring the authenticity and quality of products

  • Even in the governance of online communities, DAOs have emerged as tools for decision-making, with platforms like DAOstack facilitating decentralised governance structures for internet communities. 

Implications for the digital world

  • DAOs are ushering in a transformation in the digital world by embodying several key principles

  • Firstly, they are decentralising entities, shifting power away from centralised authorities and placing it firmly in the hands of the collective.

  • Decision-making within DAOs becomes a democratic process, where token holders have a direct say, resulting in a more equitable distribution of influence

  • A DAO governed community-driven project, contributors worldwide can participate in shaping its direction, diminishing the dominance of a single central entity.

  • Secondly, transparency and trust are fundamental tenets of DAOs. 

  • Rules are predefined and require consensus for alteration, minimising the need for intermediaries. 

  • This transparency can potentially disrupt traditional industries by eliminating the opacity often associated with centralised organisations.

  • Thirdly, DAOs champion inclusivity, democratising access to resources and opportunities

  • They transcend geographical and socio-economic barriers, enabling global participation

  • This inclusivity not only promotes diversity but also fuels innovation, as individuals from various backgrounds collaborate to create innovative solutions.

The challenges and controversies

  • The journey of DAOs has not been without hurdles. 

  • The infamous DAO hack in 2016 exposed vulnerabilities in the code, leading to a contentious hard fork.

  • A hard fork refers to a change in a network’s protocol that makes previously invalid blocks and transactions valid, or vice-versa.

  • This incident highlighted the need for rigorous security audits and raised questions about the immutability of blockchain systems.

  • The legality and regulatory framework surrounding DAOs remain a topic of debate.

  • Traditional legal systems are still catching up with the decentralised nature of these entities, leaving room for uncertainty in many jurisdictions.

  • Regulatory uncertainty looms large as jurisdictions grapple with classifying and regulating these decentralised entities. 

  • DAO tokens, often representing ownership or participation, can potentially be considered securities, subjecting them to complex regulatory requirements and compliance challenges. 

  • Legal liability within DAOs remain elusive, with decentralised decision-making and automated smart contracts making it difficult to assign responsibility for actions taken. 

  • Issues like smart contract vulnerabilities and security breaches introduce questions of legal recourse and liability



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Decentralised Autonomous Organisations UPSC NOTE
Decentralised Autonomous Organisations UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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