Decentralized Autonomous Organizations
The world is changing rapidly and the internet is fast entering a new technological era as web 2.0 gives way to an emerging set of blockchain technologies. This next generation of internet technologies built on the blockchain offers many interesting new technological, economic and social innovations – such as digital currencies, distributed ledgers, blockchain IoT systems – that will transform many industries from finance and insurance to energy, and cybersecurity. But probably the extraordinary thing about this next generation to the internet built on the blockchain is that it is, as one commentator noted: “an institutional technology” at the heart of social organizations and all forms of institutions is the question of how we work together by exchanging value within a trusted environment. The blockchain is a technology that enables automated trust and the automated frictionless value exchange. This capacity to automated the basic workings of social institutions coupled with increased interconnectivity means that we increasingly have the technological means to create massive organizations that are truly distributed and automated, something we have never seen before and whose potential is only really limited by one’s imagination. This potential of the blockchain to revolutions human social institutions is most clearly demonstrated in what are called distributed autonomous organizations that give us a glimpse into the future.
Although truly autonomous decentralized organizations are something new they can also be seen as just one more step in a millennia-old process of institutional evolution. A process in which we have gone from organizations based fully upon the specific characteristics of their leaders within hierarchical structures, such as in chieftains or monarchs, to the modern bureaucratic organization that is bound by impersonal rules and formal structures designed to be somewhat independent from the whims and characteristics of any particular member occupying their roles, to today’s platform economy where we have moved into semi-distributed organizations where businesses operate platforms where the rules are executed by computer code automatically.
In our current platform economy that has been built on web 2.0 technologies over the past decade, organizations are a hybrid of distributed automated platform and centralized business organization managed by people. Platforms, like YouTube, Alibaba, WeChat, Upwork or Uber, represent a combination of both centralized digital platform, operated by a private business, and distribute user-generated systems build on the platform by hundreds of millions of users. However, things are changing fast at present and the Web 2.0 technology that created these platforms is giving way to a new era in web technology with the rise of the blockchain. Blockchain technology offers the possibility to disintermediate these platforms by creating fully distributed systems of organization without need for a centralized organization supporting the platform. With the blockchain, we now have the technology to create truly distributed organizations at a global scale, something that we previously did not have.
A decentralized autonomous organization, also called DAO is an organization that is run by rules that are created by their members through a consensus process and then written into a set of contracts that are run via computer code, thus enabling the automated management of a distributed organization. On a more technical level, a DAO is an organization that is managed through rules encoded in smart contracts, and run on the blockchain. DAOs are online platform communities, with their resources organized according to rules agreed in advance and set out in its code. DAOs are open source software, capable of modification through member consensus. They are currently made possible by the development of Ethereum. Ethereum is a public blockchain which works as a decentralized virtual machine for executing peer-to-peer contracts. DAOs are essentially a set of complex smart contracts that combine to form a set of rules that manage the operations of a group of members and their resources. Distributed organizations are based on a few core principles to their design which are ultimately trying to support a self-sustaining system of organization through local feedback loops.
Instead of having formal management structures monitoring and coordinating the organization from a central point, decentralized organizations work through signaling systems – which are distributed feedback loops – as means for aligning the individual with the group. Distributed organizations tackle a problem by creating an infrastructure of cooperation done through the local interactions between members and signaling systems which are designed to create a self-organizing system, a good example of one such signaling system would be the feedback a buyer leaves for a seller on eBay, thus creating a signal to others about the seller’s trustworthiness and self-regulation via only peer-to-peer interaction.
At the heart of these distributed organizations is the idea that groups are about value as measured by some form of a token. With distributed ledgers, we can create markets out of tokens that represent whatever value system the organization is based around. It is this value, token system and market mechanism that are at the heart of the organization, they regulate the system and define any one person’s position within the group. These distributed organizations aim to be meritocratic, that is to say, a person’s position in the organization is based upon the value they have contributed as measured by the other members that they have interacted with. Their value and corresponding reputation that they have received through their interaction with other members defines their status within the community, with all of this being encoded as tokens on the blockchain.
Autonomy and Independence
Distributed organizations try to draw upon the intelligence of many people by drawing upon their specific local knowledge. They try to avoid situations where people become overly influenced or persuaded by any highly influential member. They try to harness a diversity of perspectives from all the members.
Distributed organizations try to embody the process of evolution in their design. Similar to the evolutionary process that is built into our market economy. Distributed organizations work through a process whereby members create a stock of new ideas, decisions or initiatives and then members essentially invest their tokens into those that they believe most viable and receive rewards if the initiative is beneficial to the organization. Thus mimicking the process of evolution where new varieties are created and selection is performed based upon their contribution to the whole organization.
Distributed autonomous organizations are very much in their infancy; they are still just experimental. Not only do we lack the actual finished software solutions, we in many ways still lack some of the basic science required to understand the full dynamics through which self-organizing social systems can work in a stable, safe and sustainable fashion. There are many things that can go wrong with badly designed social systems, one of the first large-scale autonomous distributed organizations was recently hacked at the cost of millions of dollars.
We are still in the experimental phase of trying to understand exactly all the parameters and dynamics that are needed to make a social system self-regulating and then building these into the software. This being said a number of distributed systems for organizational management already exist such as Backfeed or Colony being the most often cited examples. Although such systems are still experimental in nature their potential should not be underestimated and they will only grow as the underlying technology develops and our understanding of distributed self-organizing systems matures. The blockchain and new distributed models of governance can play a major role in providing the trust infrastructure, the platforms and off-the-shelf organizational solutions to massive social systems; the type that would be required to develop functioning global institutions.