The DAO, and what it means for capitalism

About a month ago, I started idly looking through a piece of code called "The Standard DAO Framework". It's a weird piece of code-

  • It's written in a language not many people have heard of yet (github doesn't even have syntax highlighting, which makes it a bit annoying to read there).
  • The language only runs on a super-slow virtual computer about the speed of a 1998 cellphone.
  • The virtual computer is simulated by everyone together simultaneously, is everywhere and nowhere and is owned by no-one.

This article is about the piece of code, what it does and what it means. The short version is that a DAO represents a single collective entity - like a company, a government, a trust or a marriage. The "Standard DAO Framework" is a higher abstraction for society, if you will, created as software to simulate the way trust must work internally between all the individuals involved in these groups in order to achieve a fair and just shared outcome. It is not an AI - it has no will or direction of its own - it merely encodes the logic all parties have agreed must be adhered to into an incorruptible and deterministic process that no flawed human can subvert.

You don't necessarily need to know about the virtual computer to understand the piece of code - and essentially if bitcoin is "magic internet money from the central bank of the internet that exists everywhere and nowhere" then the virtual computer, ethereum, is a "magic internet computer that exists everywhere and nowhere" in much the same way. If you can accept this as truth then please read on, but if it sounds impossible or like gibberish to you then I can point you at this other article or this video to get you up to speed.

The concept of encoding an entire organisation's values and desires into a computer program might sound quite bizzare when expressed in those terms, but remember- we do this already anyway. Every website you visit and every app you use is really just a bundled package of deterministic instructions that encode the worldview of the organisation who built it for you. Consider this when you're next using software and hardware created by companies you believe are morally corrupt or ambiguous. There are always other choices, and the choices you make in your technology have a direct and lasting impact on the way society evolves.

This is the part where I sell you on one of those other choices- but we have to go all the way back to the start of this and discuss the organisations involved in order to fully appreciate what The Standard DAO Framework has evolved into in these 4 short weeks.

The prehistory of the New Internet

In the beginning (the ancient times of roughly 2 years ago), there was The Ethereum Foundation, a not-for-profit group formed solely to build the virtual computer itself. The foundation ran a crowdsale, of sorts- they launched a pre-release version of the network and asked those who were interested to buy in to the platform.

Because the platform was like bitcoin, and because other copycat 'crypto-currencies' had popped up where all the initial money was held by a select few people, the fact of this crowdsale being a part of ethereum's introduction to the world caused some mistrust. But enough people trusted it that this happened anyway, and by late Feb 2016 the production-grade network was ready.

But much before that first public release, the Ethereum Foundation split up. Some of its original contributors stayed, and others fragmented off to start their own ventures elsewhere. This seemed strange as well- what was going on with the core team that had built this wonder? Was there internal friction? Difference of opinion? Why weren't they all still scribbling on the same whiteboards, as it were? The answers start to surface only now, as the fruits of their labours come into the public eye.

One of the new companies formed in this upheaval was are your standard modern day brick-and-mortar business. They pay tax, they have offices, they hire engineers, they write code and consult to clients. Their company statement is essentially one of assisting today's world with the transition onto the blockchain- specifically people, organisations and Internet of Things devices.

So for a while there's this new company starting up, building out their tech and getting ready to put their products to market. They seemed to be focusing quite heavily on Internet of Things for a while, but at some point the work they'd been doing on DAOs became polished enough to share with the rest of the world and the code for the Standard DAO Framework, along with a whitepaper discussing its design, was open-sourced onto github.

Birth of The DAO

Following this, there was much debate and discussion across the community and the wider internet. People were intrigued and could see holes in the logic. And to be clear- there's always bugs and assumptions in code. The framework will continue to evolve as people collectively work out the kinks- in the first iterations such adjustments were primarily about ensuring minority rights. The point is, the DAO evolved collaboratively after its inception- it is no longer by the design of alone. People discussed the whitepaper, contributed patches, made changes and eventually it reached some kind of equilibrium that all interested parties seemed happy with.

And then- something very strange happened:

This is where it gets confusing. Someone - presumably but it's not really clear to me and it doesn't actually matter much as you'll soon see - then took the final DAO, had it signed cryptographically such that everyone could ensure that it definitively was stored at this address within the ethereum computer and that they were really sending money to it rather than a scam, and then uploaded it. Then people started throwing money at it.

To avoid repeating the confusion this caused me, we'll refer to this particular DAO uploaded and stored at this particular address as "The DAO"- not to be confused with the DAO template.

As I'm writing we're only about halfway through the crowdsale period (and price is about to start climbing) but current investment now stands at over $101.7M USD. The DAO is fast becoming the highest-grossing crowdsale ever - in spite of the relatively new & small community around it and technical know-how required to participate in the process (I've had to read the words Synchronisation failed: no peers to keep download active more than I would want to count...). For a live update of how things are progressing you can go to and there is also excellent historical information available at daostats.

Effectively what this has all done is decoupled the investors and the company's board decisions from the business which is presumably going to do the work. In fact the mainstream media has made this difficult, as they refer to The DAO as the " DAO" or the crowdsale as the " crowdsale".. but really it is neither. It is only The DAO, and The DAO is only the group mind of the individuals who have bought shares in it. is a contractor to that DAO like anybody else, and members of the DAO will have to submit proposals for to do any work and they will have to deliver on those proposals in order to get paid. Where the first ethereum crowdsale required us as outsiders to trust The Ethereum Foundation to actually deliver on their promises, The DAO crowdsale does not. One controls their investment all the way through the process, and can withdraw or file a vote of no confidence at any time.

Despite the separation of all these entites - The DAO from and from The Ethereum Foundation - there is a definite shared common goal and mutually beneficial relationship in play. Each organisation working as an organ within this whole apparatus is strongly incentivised to keep its peers happy because that wellbeing feeds back and forth through the whole chain of commerce. The DAO is motivated to invest in because they currently know blockchain software better than most (though there are other groups who will be applying to fulfil services to the DAO), and they are also motivated to invest in the Ethereum Foundation because a better network means higher transaction throughput means more interest in ethereum as a whole means higher economic value means that $100M+ the DAO is holding could easily turn into billions of dollars in 2017/18 when we see ethereum 2.0 and the high-throughput blockchain that comes with it.

It's natural for us to think of companies fragmenting as being a sign of instability because we've grown up in a world where big means success. But this isn't the world we're moving towards in a post-scarcity economy, instead it's a world where small, agile and interconnected creates much better and more positive outcomes. I believe the idea is to behave as open-source software does- small, modular, interchangeable, lightly-coupled, resilient companies that do what they need to do in terms of the larger picture and do it well out of passion for the project as a whole.

The DAO's future

What's particularly interesting about all of this is that the DAO as yet has no real defined goal or purpose. It's a company with no direction and over $100MUSD in investment, which sounds like madness. The truth is people haven't bought into it because of what it's doing or what its product is, they've bought into it because of how it's governed. So really, in the long term it's probably best to think of The DAO as a new country rather than a new corporation. It is a declaration of independence and a new charter for democracy, as software. People have bought in because they can see that this organisation, whatever it does, will do it for fair, just and completely transparent democratic reasons. And they simply believe that because of that, it will do good.

Whether or not that will truly be the case is still up for debate. It remains to be seen whether group wisdom of this kind is a possibility; whether such a group can run without a single well-defined goal and whether the current implementation will lead to actionable outcomes or the near-inaction found in larger organisations. For me this rests with the logic in how the passing vote for each proposal is calculated- and specifically whether 20% and 53.3% as upper & lower bounds will create the right balance in the DAO's decision making.

So my heart wants to say 'yes' but my brain says 'show me'! If nothing else at least I'll have bought my DAO tokens and played my part in the grand experiment. One thing's for sure: it's going to be super interesting to see how it all plays out.

Further reading: