The History of the DAO: How a Failed Project May Still Impact the World
While proponents of blockchain technology acknowledge that the industry is still in its early days, innovative technologies continue to be deployed on an ambitious scale. This has resulted in an influx in disruptive and potentially industry-changing projects. However, innovative projects have been let down by immature technology in the past, such as with The DAO; a former decentralized autonomous organization.
Decentralized autonomous organizations (DAOs) were conceived as a new type of organization run entirely free from intermediaries. While the technology could have huge ramifications on the world as it exists today, its most notable implementation – a project called ‘The DAO’ – fell victim to a breach that led to it reaching an untimely end.
What is a decentralized autonomous organization?
A decentralized autonomous organization (DAO) is an organization run entirely through software. These organizations are able to run without being led by a central party and leverage smart contracts in order to conduct their operations.
These smart contracts are initially written by a group of developers and are tasked with enacting transactions once programmed conditions have been met. Typically, a DAO begins with an offering of its supplementary tokens through a fund-raising platform like an Initial Coin Offering (ICO).
From there, a DAO is able to begin operating, and it is up to token holders to vote on how the organization’s money is spent.
The idea is to use the same decentralized technology that supports digital currencies like Bitcoin on a larger scale, allowing for an entire organization to operate without a governing entity.
The history of The DAO; the industry’s most famous example
The DAO is perhaps the most famous example of a decentralized autonomous organization in action, and began with a crowdsale in early 2016. This crowdsale allowed the public to purchase DAO tokens with Ether (ETH); the token that powers the Ethereum network.
The project was built on top of the Ethereum blockchain, after a company called Slock.it created a smart contract that gave token holders voting power about what it should do with its funds. The project grew from there, until eventually the team decided to create an entirely separate organization.
This organization, titled ‘The DAO’, enlisted volunteers from throughout the community to work on the decentralized project. After its release, users were able to send Ether to a specific wallet address in exchange for DAO tokens.
Over a four week period, The DAO shattered fundraising records, raising around 12 million ETH, worth around $150 million USD at the time.
“This was an order of magnitude larger than we or anyone could have expected,” explained Slock.it, in a post exploring the project’s history. “With this record breaking amount came a lot of media attention as well as very critical views regarding the governance model of The DAO.”
With the platform live, it facilitated a system where token holders voted on which proposed ideas were worth funding. It provided a democratic environment for anyone to request funds, and it was up to the majority of users to make these decisions.
However, as the project began to mature and investigate solutions to potential vulnerabilities, it fell victim to a major breach.
3.6 million ETH stolen and then returned; why The DAO failed
Despite its promising start, The DAO was in many ways a victim of its sudden success. In June 2016, hackers stole 3.6 million Ether (worth around $50 million USD at the time) in a major breach of The DAO.
The stolen funds were not lost immediately, as they were frozen as a part of a 28-day holding period. This gave the community time to decide how to proceed, with some calling for the stolen funds to be returned, and others stating that interfering with the transaction was against Ethereum’s decentralized principles.
Ultimately, a hard fork of the Ethereum network split it in two, with the version of Ethereum that exists today undoing the ramifications of the breach. Those that were not in favour of this action opted to use the original Ethereum fork, which is known today as Ethereum Classic.
A lingering legacy, DAOs could still be revolutionary
While The DAO’s eventual failure served as a cautionary tale about the dangers of sudden success with nascent technology, it has not invalidated the potential impact that decentralized autonomous organizations could have on the world today.
If nothing else, The DAO succeeded at bringing this technology to light with its immense – yet temporary – success. As the technology continues to mature, innovative minds investigate how projects like DAOs and dApps could usher in a new era of economic freedoms not governed by intermediaries.
Ultimately, like blockchain technology as a whole, DAOs are a new and highly experimental addition to the tech world. Rather than dismiss their potential due to the aftermath of The DAO, proponents believe that its history can serve as a learning experience that will guide projects moving forward.
Image Credit: DAO logo
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