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About Decentralised Autonomous Organisations

Context:

Decentralised Autonomous Organisations (DAOs) represent a groundbreaking innovation at the intersection of Blockchain Technology and governance.

Relevance:

GS III: Science and Technology

Dimensions of the Article:

  1. Decentralised Autonomous Organisations (DAOs): A Digital Paradigm Shift
  2. Significance of DAOs
  3. Challenges Associated with DAOs

Decentralised Autonomous Organisations (DAOs): A Digital Paradigm Shift

  • DAOs are digital entities functioning autonomously, free from centralized control, relying on smart contracts and member consensus.
  • Utilizing cryptocurrencies for decision-making and resource allocation, DAOs have emerged across industries like finance, art, and governance.
Use Cases Across Industries:
  • Global Financial Ecosystem: Platforms like Compound and Maker DAOs redefine decentralized finance, providing global financial services beyond traditional banks.
  • Art World: Artists tokenize creations, employing DAOs for royalty management and intellectual property control.
  • Supply Chain Management: DAOs in supply chains ensure transparency and traceability, enhancing product authenticity and quality.
  • Governance of Online Communities: Platforms like DAOstack facilitate decentralized governance structures for internet communities.

Significance of DAOs:

  • Decentralization: DAOs shift power away from central authorities, embodying a decentralized approach.
  • Democratic Decision-Making: Token holders participate in proposing and voting on decisions, ensuring an inclusive and fair governance structure.
  • Transparency and Immutability: DAOs leverage smart contracts for transparency and immutability, fostering trust and reducing opacity.
  • Global Participation: DAOs transcend geographical and socio-economic barriers, promoting diversity and innovation.
  • Direct Cooperation: DAOs facilitate direct collaboration among participants, eliminating the need for intermediaries.
  • Encouraging Innovation: The structure of DAOs encourages innovation, cooperation, and the free flow of ideas, unrestricted by hierarchical structures.

Challenges Associated with DAOs

Security Concerns:
  • Smart Contract Vulnerabilities: Notorious incidents like the 2016 DAO hack underscore the importance of addressing vulnerabilities in smart contracts.
  • Security Audits: Rigorous security audits and ongoing improvements in code reliability are imperative to ensure the integrity of blockchain systems.
Legal and Regulatory Challenges:
  • Decentralized Nature: Legal classification, taxation, liability assignment, and regulatory compliance across jurisdictions pose challenges due to the decentralized nature of DAOs.
  • Governance and Compliance: Unanswered questions regarding governance, Intellectual Property, and cross-border operations require regulatory adaptation.
Dispute Resolution and Accountability:
  • Decentralized Decision-Making: Decentralized decision-making complicates dispute resolution and responsibility assignment within DAOs.
  • Smart Contract Automation: The automated nature of smart contracts raises concerns about accountability and conflict resolution without traditional legal mechanisms.

-Source: The Hindu


February 2024
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