Ethereum reinvents companies with launch of The DAO

The Ethereum development and design team and its far-reaching community are poised to replace traditional, hierarchical, centrally governed companies with the entirely new concept of a decentralised autonomous organisation (DAO).

Some have speculated the acquisition of tokens to join "The DAO" may attract over $100m of ether (ETH), the native currency of Ethereum. No one saw Ethereum coming two years ago, yet it became the world's second largest crowdfunder at the time ($18.9m).

A truly decentralised organisation (equivalent to a blockchain company) means the individuals that form it stay in control of its funds, vote on its future and get rewarded when it succeeds.

In its manifesto The DAO states that its goal is to "blaze a new path in business organisation for the betterment of its members, existing simultaneously nowhere and everywhere and operating solely with the steadfast iron will of immutable code".

It states The DOA will diligently use the ETH it controls to support projects that will provide a return on investment or benefit to the DAO and its members and benefit the decentralised ecosystem as a whole.

The DAO community will vote on approving or declining proposals submitted in English backed by smart contract code. Voting rights will be proportional to the amount of tokens held. The proposals submitted to The DAO by contractors, define how much or how little control over its operational responsibilities The DAO "outsources" to the contractors.

It is expected that most of the time, the proposals submitted will give day-to-day operational control over to the contractors, while enforcing strict payment schedules executed in predefined installments so that DAO Token Holders keep control over their ETH at all times. This model provides a good middle ground between excessive micromanagement and fully trusting a contractor, while allowing experimentation with more complex governance models in the future, said a blog post.

Theories about why people work in firms relate to things like transaction costs. Thinkers like Ronald Coase concluded that it might be very difficult or costly for firms or organisations to engage in production when they have to hire and fire their workers depending on demand/supply conditions. It might also be costly for employees to shift companies every day looking for better alternatives. It could be argued that some of these vagaries can be ironed out by evenly distributed computing.

Since the emergence of cryptocurrencies and Crypto 2.0, the idea of DAOs following revolutionary governance models and hovering over jurisdictions has been a source of fascination for some, consternation for others i.e. the majority of lawyers.

An example of a DAO proposal in action is slock.it, the Ethereum blockchain and IoT device for the sharing economy. Another is Mobotiq which has a vision of modular Electric Vehicles that can be rented P2P is a perfect fit for the blockchain. Integration with Ethereum could enable the development of fully autonomous, self-renting vehicles.

Describing slock.it, Ethereum designer Alex Van de said in an interview: "I describe what slock.it does as something like this: it's a company that makes door locks that can rent themselves. This is not a door lock that connects to the internet and uses a service like airbnb to get a credit card etc. The lock itself has a wallet, rents itself using digital money and sends funds to the parent company.

"The company itself is a digital company: this is not a 'virtual' company registered in Delaware with a branch in Ireland and offices on San Francisco. It's an actual digital company that only exists on the internet. And they are funding themselves via the blockchain. Not using VCs, not using tech enthusiasts' funds, not using a big company like Alphabet. They are overstepping all that by selling their digital shares of a digital company directly using the blockchain."

In a pseudonymous for-profit environment, there is a risk that someone who could acquire 51% of the DAO tokens could then submit a proposal that acquired all the funds in the DAO. To prevent this happening The DAO has a system whereby the community nominates curators and only they can add contractor addresses to a whitelist, authorising them to receive ETH from the DAO.

The full list of The DAO curators are: Ethereum founder, Vitalik Buterin; Alex Van de Sande, lead designer, Mist; Dr Gavin Wood, founder Ethcore; Christian Reitwießner, Solidity and C++ team lead; Viktor Tron, core developer Go Client; Aeron Buchanan, head of R&D, Ethcore; Taylor Gerring, director of Technology, Ethereum; Martin Becze, JS client developer, Ethereum; Gustav Simmonson, core developer, Ethereum; Vlad Zamfir, proof of stake lead developer, Ethereum; and Fabian Vogelsteller, Lead Dapp developer, Mist.

Stephane Tual, founder COO, slock.it, said in an emailed statement: "23 years ago to this day CERN published a statement that made World Wide Web technology available on a royalty free basis, allowing the web to flourish. The DAO hopes to do the same, but for businesses. In The DAO, there is no Director, no Board, and transparent governance is the norm, not the exception.

"Once deployed, we hope for the DAO to be a prime example of provably fair governance. It will vote on proposals for the development of products and services that it hopes will benefit it longer term, and therefore represents a chance to support a multitude of early stage projects that could have tremendous impact in the future. Yet, there will be only be ​*one*​ DAO Creation event.

"We, at Slock.it UG, have already submitted our own proposal for the creation of the Universal Sharing Framework and the Ethereum Computer. Others such as Mobotiq are gearing up to take advantage to what will likely the largest pool of ETH available to promising blockchain projects.

"In fact, The DAO could elect to support proposals that eventually support the development of the Ethereum protocol itself, and become the equivalent of an 'Ethereum Foundation 2.0', but for profit this time."

As well as for-profit proposals there is also potential to realise non-profit or charitable DAO proposals. There is at least one charitable org. which has been listed on ethercasts as a DAO concept.