What are Blockchains, and Why Do They Matter for DAOs?

Blockchain is the foundation that enabled DAOs to emerge, but how?

Blockchain is the foundation that enabled DAOs to emerge by providing a shared canvas where people around the world, even if they don't trust each other, to work together. A blockchain is a collaborative database that keeps track of data like how much money each person has. One key feature is that tampering or lying about the state of the world is mathematically impossible. For example, let's say Hal has $5 in Bitcoin but claims to send it to both his mom and his friend. In the traditional financial system, a trusted authority like a bank would keep track of Hal's balance and stop one of the transactions. The double-spend problem had plagued previous attempts and creating digital money until famed pseudonymous Bitcoin founder Satoshi Nakamoto devised a solution in the 2008 Bitcoin whitepaper. With that tamper-proof foundation, blockchains allow us to specify rules in computer code instead of relying on legal documents and courts. For example, a DAO could create a smart contract that automatically sends money somewhere if a vote passes. With blockchains, there is no need for a bureaucracy since transactions are either executed or not based on objective, transparent criteria.

The idea of collective coordination that inspired DAOs is not new; employee owned co-ops and member-owned credit unions have existed for decades. One shortcoming of many pre-blockchain collective systems is reliance on the benevolence of trusted administrators to make sure resources are distributed according to plan. Without transparency and clear rules for coordination, collectives can devolve into situations like Orwell's Animal Farm, where the pigs declare themselves "more equal" than the others and start skimming off the top. In a traditional company, a bad actor with power can move money out of the bank account, or a bad-intentioned CFO could cook the books. While these transgressions can be remedied through tedious lawsuits, in a DAO they'd be impossible in the first place since everything happens on a transparent blockchain and moving money requires a proposal and a DAO-wide vote.

When Bitcoin emerged, it let us agree on basic facts and figures like how much money someone has without needing a centralized authority like a bank. DAOs are scaling that trust to organizations more broadly, allowing us to work with and coordinate resources with people across the world, even if we just them online yesterday so aren't sure about trusting them. Google, realizing its powerful position as an internet behemoth, used to have an internal mantra, "don't be evil", that guided product decisions. Today, blockchains are enabling DAOs to create trust that doesn't rely on benevolence, changing the framing from "don't be evil" to "can't be evil".

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