Getting to Know DAOs & DApps, the Blockchain-Based Players


Kambayashi, S. (2022). The race to power the defi ecosystem [Illustration]. The Economist. https://www.economist.com/finance-and-economics/the-race-to-power-the-defi-ecosystem-is-on/21807229

Following the last set of articles addressing blockchain and smart contracts, two additional relevant players have gained entry into the Web 3.0. playground. They are the Decentralized Autonomous Organizations (DAOs) and the Decentralized Applications (DApps). Both come forward strongly and, like blockchain and smart contracts, both have interesting characteristics -some of which are shared with the latter- that will likely make them stay among us.


The DAOs display a new concept of how organizations can work, i.e., a novel concept on how to run a company or an organization. Essentially, organizations would be controlled by computer algorithms put in smart contracts. This is a part of what the new “blockchain philosophy” brings with it: computers, decentralization, transparency, immutability, autonomy, and security in transactions.


DAOs come with the potential to decentralize and provide transparency in the management and decision-making processes in a company or any other type of entity or community. DAOs work based on a consensus protocol which ensures that the decisions taken within the DAO are, really, a consensus between the parties (guaranteeing no third-party interventions that could alter results). Although this technology is new and not fully explored, the fact that DAOs can provide a potential alternative to the tedious traditional management and decision-making processes -at least a part of it- that comes with running a company makes it worth the effort of developing it further.


The main idea behind DAOs is to create new entities that “live” in the blockchain and to be able to run autonomously through smart contracts. The new entities would work and execute directions introduced in smart contracts, which would automatically perform the instructions given to them. The equivalent to the representation of ownership —shares, ownership titles— would be the ownership of tokens, which would give the owners the right to vote, approve, invest, etc. It would be possible to manage and invest the capital of the "tokenholders" according to the directions provided in the relevant smart contract(s) of the DAO. Since DAOs rely on smart contracts, they are dependent on the capacity to transform human actions and instructions into computer language specific enough to translate them into executable parameters which will be self-executable through smart contracts. Because of this, of course, human intervention would still be required, and most likely still for quite a long time (especially for tasks and decisions that are hardly translatable to code). Surely many instructions regarding the organization could already be implemented through smart contracts (supply chain, finances, voting procedures, and resolutions of meetings).


This poses a big challenge for the traditional concept of doing business in companies and organizations, which heavily rely on personal trust before entering into business with anyone. Societies rely heavily on the trust component when doing business or deciding who and with whom to invest and how and where to invest. DAOs would no longer require this heavy reliance because the process itself would be transparent and secure enough not to require trust as a core element anymore. Of course, this does not mean that prior checks and due diligence on potential projects would no longer be needed. DAOs are not exempt from the risks that affect blockchain and smart contracts -such as cyberattacks and the coding difficulty- so there is still hard work to do on this end. Also, an added issue is the fact that current regulations regarding the creation of companies and organizations are not prepared to incorporate the DAO concept.


Here's a comparison of the main features between a DAO and a traditional organization:

Ethereum (n.d.). What are DAOs? A Comparsion [Screenshot]. https://ethereum.org/en/dao/#what-are-daos

The DApps, are applications that run in a blockchain, based on a decentralized network of nodes (computers) that interact between them. Basically, DApps facilitate secure access to internet services for their users either through a computer, or a smartphone. It is like having a Twitter-like or a Facebook-like application without a central server, without someone behind filtering or deciding what can or cannot be done.


Each user of a DApp is a node that forms a part of the network where all the members act collectively, proving that any movement within the platform is, in fact, correct. The DApp system itself, through smart contracts, proves the validity of each movement according to the instructions given in the smart contract. Each time a transaction takes place, it is recorded in the nodes —all encrypted— and each node also acts as a backup. Like DAOs, DApps have the same benefits as blockchain and smart contracts as well as their disadvantages. A big must for these new applications is that, since there is no centralized server and no centralization of data, users’ data cannot be used for commercial purposes —like personalizing sales or manipulating behaviors and interests.


An example of DApp is the CryptoKitties’ game (mentioned in a previous article- My Name is Token, Non-Fungible Token). CryptoKitties is a game about collecting virtual kittens that are unique. Each of them has specific characteristics and they can be crossbred to get new kittens which are even more “rare”. This “rarity” is what makes them valuable.


BBC. (2017). CryptoKitties craze slows down transactions on Ethereum. BBC Tech. https://www.bbc.com/news/technology-42237162

Having said all of the above, both systems are part of the bigger picture: web 3.0. Like blockchain, NFTs, and smart contracts they are not exempt from controversies and issues to be tackled, but the potential to transform the way we organize and make decisions, in the case of DAOs, and the way we interact with applications —or better put, the way applications interact with us— in the case of DApps, make them worth the effort. Becoming familiar with these concepts will do no harm to people who are still reluctant to invest some time in understanding Web 3.0. It will help if we stay informed and educated about it so we can make better decisions.



References:


Bit2me. (n.d.). What are DApps? AcademyBit2me. https://academy.bit2me.com/en/que-son-las-dapps/


Bit2me. (n.d.) What is a DAO? AcademyBit2me. https://academy.bit2me.com/en/que-es-una-dao/


BBVA. (2022). Qué son las ÐApps y por qué serán cada vez más importantes. https://www.bbva.com/es/que-son-las-dapps-y-por-que-seran-cada-vez-mas-importantes/


Carrascosa Cobos, C. (2017). El nacimiento de la empresa descentralizada. BBVA. Blockchainhttps://www.bbva.com/es/nacimiento-empresa-descentralizada-blockchain/


Ethereum (n.d.). What are DAOs? https://ethereum.org/en/dao/#what-are-daos


Pinto, A. (2019). Exploring blockchain as the foundation for next gen apps on Web 3.0. IBM. https://www.ibm.com/blogs/blockchain/2019/03/exploring-blockchain-as-the-foundation-for-next-gen-apps-on-web-3-0/#:~:text=Web%203.0%20is%20the%20collection,next%20generation%20of%20the%20web.


Roose, K. (2022). What are DAOs? The New York Times. https://www.nytimes.com/interactive/2022/03/18/technology/what-are-daos.html#:~:text=In%20its%20most%20basic%20form,network%2C%20or%20influencing%20an%20election.


Image references:


BBC. (2017). CryptoKitties craze slows down transactions on Ethereum. BBC Tech. https://www.bbc.com/news/technology-42237162


Ethereum (n.d.). What are DAOs? A Comparison [Screenshot]. https://ethereum.org/en/dao/#what-are-daos


Kambayashi, S. (2022). The race to power the defi ecosystem [Illustration]. The Economist. https://www.economist.com/finance-and-economics/the-race-to-power-the-defi-ecosystem-is-on/21807229

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Mar Estrach

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