A Decentralized Autonomous Organization (DAO) is a protocol or organization that is governed by pre-defined rules written with computer code, as opposed to being governed purely by human judgment. In DAO participants are rewarded based on their contributions according to predefined criteria being met.
What are the benefits and downsides of DAOs?
DAOs provide many benefits including lower operating costs due to no need for large management teams. DAOs allow contributors to participate and be compensated based on meeting objective requirements as opposed to more subjective requirements for participation, such as being based on who one knows. In addition to this there are other legal and tax benefits to having no central person in charge of an organization.
Possible downsides include the ability for higher damage to be inflicted on a DAO organization should they ever be hacked or exploited, since all aspects of the business including operating procedures are written in code.
Is Bitcoin a DAO?
In many ways Bitcoin does operate as the worlds largest DAO. It is arguably the most decentralized of all major blockchain projects and rewards participants (namely miners) without any need for human intervention or management.