December 15, 2022

A Terminology Guide on DAOs, DACs, DAs, and More

Explore the fundamentals of DAOs, their operational mechanisms, and their role in the blockchain ecosystem, highlighting the shift towards decentralized governance and...

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Anuska

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Cryptocurrency and blockchain technology and digital assets are some of the most popular topics in the digital consensus right now. One of the most popular topics in the digital consensus space is the concept of decentralized autonomous entities. Even if you have been involved in the digital consensus community for over a year, it’s probably still common for words like “Digital Autonomous Organisation (DAO)” or “Decentralised Autonomous Company (DAC)” to be confusing. These decentralized autonomous entities are also referred to as DAOs, DACs, and DAs.

So what’s the difference?

A lot of similar terms are thrown around in this space, and it can be hard to keep up. This post will outline the terminology used with these different types of decentralized organizations and try to explain how they work.

Table of Contents

Smart Contracts

A smart contract is a piece of software that directly controls digital assets in a decentralized manner. Due to their autonomous nature, smart contracts promise a safer, more secure, and more transparent relationship between all parties involved. Smart contracts can facilitate, verify and enforce the negotiation or performance of an agreement (i.e., contract) between multiple parties. They can be used to encode arbitrary state transition functions, allowing developers to encode their own logic for contractual clauses and events without having wide security implications that would come with creating a new cryptographic primitive (e.g., a new data structure). In this sense, they are similar to unstructured supplementary specifications (USVs) in computer science. The Ethereum blockchain uses Solidity as its programming language for smart contracts.

Autonomous Agents are on the other Side of the Automation Spectrum

While they are, technically speaking, computers, autonomous agents are not designed to be controlled by a human operator, nor do they need any specific human involvement to carry out their tasks. Where a robotic process automation system typically has some specific human involvement, autonomous agents are on the other side of that spectrum: they don’t need any human involvement. While some degree of human effort might be necessary to build the hardware that the agent runs on, there is no need for any humans to exist that are aware of the agent’s existence.

Decentralized Applications

Decentralized applications are software that is built on a decentralized network. This means that instead of being controlled by one person or company, they are controlled by a group of people who all agree to follow the same rules and maintain the same standards.

The idea behind decentralized applications is that they can be built more quickly and easily than their centralized counterparts because they don’t have to wait for approval from a central authority before they can be released into the wild.

Decentralized applications have many benefits over traditional web applications, including:

Greater security (no central point of failure)
no downtime (the blockchain is always available)
Better scalability (one app can be used by many people at once)

Decentralized Organizations

A decentralized organization is an entity that operates through a set of rules encoded into computer code and enforced on the blockchain. This means that instead of a hierarchical structure managed by a set of humans interacting in person and controlling property via the legal system, a decentralized organization involves a group of humans interacting with each other according to a protocol specified in the code and enforced on the blockchain.

In simpler terms – a decentralized organization is a company that works without a centralized management system. Instead, it uses a protocol specified in code and enforced on the blockchain to allow humans to interact with each other in a decentralized way.

Decentralized Autonomous Organisations

The idea of a decentralized autonomous organization is easy to describe: it is an entity that lives on the internet and exists autonomously. It also heavily relies on hiring individuals to perform specific tasks that the automaton itself cannot do.

In other words, it’s a business model based on automation and decentralization. British computer scientist Nick Szabo first proposed the idea in 1997, and he later expanded on his definition of DAOs in a paper called “Formation of Decentralized Autonomous Organizations.”

However, there are some limitations on what this program can do for us because computers do not yet have all of the capabilities of humans when it comes down to making decisions about how best to accomplish something within a given context (known as “domain expertise”). For example, computers cannot read minds or understand the natural language very well yet, so they need help translating between human and machine languages so that both sides can communicate effectively.

Decentralized Autonomous Corporations

A decentralized autonomous corporation (DAC) is a subset of DAOs, which are themselves a subset of DACs. A DAC pays dividends, meaning it has a currency that it can use to pay its shareholders for the work it does for the company.

The term “decentralized autonomous corporation” was coined by Daniel Larimer, who is also responsible for developing Delegated Proof-of-Stake consensus algorithm (DPoS). DPoS is used in all projects he created: Steemit, Bitshares, and EOS. Simply put, the company’s business model is to distribute profits to shareholders in proportion to their ownership stake.

Things to Remember about Decentralized Organizations

Safety from a Long-Range Attack

In a traditional 51% attack, a 51% attacker puts 100 ETH into a new account, then sends those 100 ETH to a merchant in exchange for some instant-delivery digital good (say, NFTs). Now, since the attacker also controls 51% of the chain, he can also reverse the transaction and spend the funds twice.

In a long-range attack, however, the transaction is more complex. The attacker sends their 100 ETH to the merchant’s address—but then the attacker also sends another 100 ETH to themself (or someone else) at their address. This second transfer takes place almost instantly; it’s a matter of moving funds from one wallet to another within the same block on the blockchain.

The attacker then spends these second 100 ETH back to themself and waits for confirmation before making any attempt on the merchant’s funds. Meanwhile, they may be withdrawing 50 ETH from their own wallet at an exchange such as Coinbase to pay for something else entirely—another type of 51% attack known as selfish mining.

Managing Trade-offs Between Layer 1 and Layer 2 Innovations

The main difference between Layer 1 and Layer 2 innovation is that Layer 1 innovations are usually more difficult for a business to implement because they require a deeper understanding of what customers want than Layer 2 innovation, which is based on existing business models or processes. This can make it difficult for businesses because they often don’t have enough information about their customers’ needs to implement a successful layer 1 innovation strategy.

The Meaning of Decentralization

Decentralized systems work better because they distribute information and power throughout the system. In a decentralized system, no one person or entity has complete control over all aspects of the system. Instead, each part of the system contributes its unique capabilities and knowledge to create a more efficient whole.

Moving Beyond Coin Voting Governance

This year, we’ve seen the rise of “coin voting” as a way to govern companies. In short, coin voting is when a company’s board members can vote on decisions by either saying “yes” or “no” and then viewing the results of each vote as a percentage.

In the past, this was done through paper ballots. However, with the advent of blockchain technology, this has become more efficient and transparent for companies.

The most significant advantage of coin voting governance is that it allows for more participation from employees. Every employee has an equal say in how the company will be run, which can lead to better engagement and productivity from employees who feel their voices are being heard.

Ethereum Scalability Research and Development Subsidy Programs

Ethereum scalability research and development subsidy programs are available for Ethereum developers. The goal of these programs is to improve the Ethereum network. The Ethereum Foundation will provide financial support to developers working on projects that will enhance the scalability of the Ethereum network.

Privacy on the Blockchain

Privacy on the blockchain is a hotly debated topic. It’s also an area where there are no easy answers.

But it’s important to remember that privacy on the blockchain is not a problem to be solved—it’s a problem to be managed.

When you get your data into the blockchain, you have two options: encrypting it and storing it in plaintext. If you choose to encrypt, you can use any encryption method with known vulnerabilities. This means that anyone who has access to your encrypted data could potentially decrypt it by exploiting a weakness in the encryption method or finding out what algorithm was used to encrypt the data (or both).

If you choose to store your data in plaintext, anyone who has access to your data can see what information is there and potentially use this information against you.

The Search for a Stable Cryptocurrency

The search for a stable cryptocurrency is an ongoing journey. Cryptocurrencies are often unstable, but in recent years, the rate at which they fluctuate has become increasingly pronounced. This has caused many to lose trust in cryptocurrencies as a reliable asset class.

To restore confidence in cryptocurrency, we must find ways to stabilize them so it can become a more reliable store of value.

Conclusion

This guide is not exhaustive, but it should be sufficient to answer the question, “What is a DAO?” The term DAO has been thrown around a lot recently, and people must avoid confusing it with other terms which could imply an inaccurate meaning. That said, blockchain technology will continue to evolve at an exponential rate.

As one decentralized concept becomes outdated, another grows to take its place once the Blockchain space becomes more populated by consumers and developers, as opposed to investors. I hope that helped! Making sure you’re using the correct terms will help your future self and other people navigate the world of blockchains with ease. Get out there. And don’t forget to have fun exploring the blockchain space.

Disclaimers: Opinions expressed in this publication are those of the author(s). They do not necessarily purport to reflect the opinions or views of Shardeum Foundation.

About the Author: Anuska is an independent freelance writer freshly exploring web3 and blockchain space. Her articles blend personal exploration with established editorial methods, and she’d love to hear your thoughts in the comments!