Decentralized autonomous organizations or “DAOs” are essentially complex smart contracts programmed to govern themselves with or without minimal external intervention. It is a concept that may enable new models for shareholder-controlled venture capital funds, decentralized information markets, company or party management and numerous other innovative governance models enabled by public blockchain technology.

The applications of DAOs are very promising. They could allow for organizations to be managed without clear hierarchies and thus digitized and recreated algorithmically instead of being largely a subject to human errors, limitations and inefficiencies.

DAOs could become a vehicle through which many of the most disruptive promises of blockchain technology are fulfilled.

DAOs Sound Like Sci-Fi…Now

At the 2013 Turing Conference, the then-Google engineer Mike Hearn gave a prediction of economic life fifty years in the future. He imagined an ecosystem of self-optimizing autonomous organizations: economic entities called “agents” that lived or died by filling or emptying their cryptocurrency wallets.

Hearn explained how a young woman might hail a taxi — she would use an app similar to Uber and receive bids from dozens of “agents,” self-owned, self-driving taxi cabs, that competed for profits they could use to refuel or optimize their software (and eventually store enough surplus profit to reproduce). Meanwhile, every facet of her travel from the roads to the electric outlets feeding the vehicle, were equally autonomous and angling for a more efficient, inviting solution to entice her to choose a taxi. This relentless competition would drive costs down to almost nothing while revolutionizing the idea of human employment.

In the near future, DAOs existing in the æternity ecosystem could become a tool for automating many of the bookkeeping and governance tasks of businesses and organizations.

A worker’s role in a corporation or other organizations is essentially governed by sets of rules. In the coming years, many companies in the blockchain sphere will try to code these into smart contracts. By breaking job functions down into a series of rules and conditions and creating a DAO to replace them (for example, if a certain condition is met, then a payment will automatically be transferred) a number of roles in an organization could be replaced with code.

Likewise, the ability of blockchains like æternity to distribute any complex computing task over a network (and incentivizing completing that task with a reward) means organizations could harness the collective intelligence of large groups of users to tackle a problem or assemble quora to decide which direction to go in.

æternity: Infrastructure for the Future

Building an infrastructure capable of supporting an entire economic ecosystem takes enormous flexibility and power. The æternity blockchain is specifically designed to facilitate the creation of safe and efficient smart contracts, enabling second generation DAOs.

The æternity platform addresses on and off-chain scalability, allowing for a high transactional and computational throughput. It will support three types of virtual machines (VMs). The æternity features an improved version of the EVM (Ethereum Virtual Machine) called AEVM, which was rewritten from scratch in Erlang and will allow æternity to run Sophia smart contracts, as well as Solidity contracts and thus enable easy migration of apps from the Ethereum blockchain. A fast version of the EVM called FAEVM especially designed to run only Solidity smart contracts is also envisioned; a third, called the Functional Typed Warded Virtual Machine (FTWVM) allows contracts written in Sophia to compile, and there is also a High-Level Machine (HLM) that allows for (near) Turing complete contracts.

This combination of agility and power ensures cheap, blazingly fast execution and enables complex logic to be incorporated into smart contracts.

Off-chain state channels move the computational load away from the main chain and allow æternity users to store smart contract state locally, greatly improving the speed and privacy of interactions and value transfers. The blockchain acts as a final arbiter of “state” and is used only for settlement in cases of disagreements between users.

DAO smart contracts can be executed efficiently while maintaining the high security promise of blockchains.

Governance — Essential Component of DAOs

For a DAO to function properly, a well-functioning governance model must be devised and incorporated. Carefully crafted governance is crucial when it comes to creating a backbone for DAOs and avoiding the issues that plagued early Ethereum-based experimentation with the model. æternity uses delegated voting, weighted by the number of tokens an account holds.

Governance is incorporated in the core protocol and allows for a streamlined decision-making process on a global scale.

In combination with other technological features such as state channels and functional smart contracts, æternity provides an extensive framework enabling numerous combinations of human interaction and automation.

Oracles are also an essential technological component that makes æternity a great platform for DAOs. Oracles provide a way to incorporate feeds of information from real-world sources, thus enabling data to flow into the blockchain and be used by smart contracts. By allowing an easy access to information such as multiple user inputs, indices data, weather conditions, patient records, or even assumptions about the future outcome of events, smart contracts on the æternity network can provide far more utility to its users.

Next Generation DAOs

æternity recognizes the enormous potential DAOs and other smart contracts could offer in the future. At the end of his Turing Convention speech Mr. Hearn speculated an end to bureaucracies and economic activity as we know it through the proliferation of leaderless, self-governed micro-organizations. If this comes to fruition, many non-creative or non-care-taking positions might become obsolete.

To enable the next generation of DAOs, decentralized applications and to promote research and education on the subject, æternity has established a strategic partnership with Comrade Cooperative.

Comrade aims to be the first fully functional example of a DAO governed on the blockchain. The framework they are building, Wetonomy, will give teams, companies and organizations the ability to collaborate, share profits, finance ideas and award contributions, all governed by the transparency of smart contracts on the blockchain. The partnership is also structured in an innovative way to facilitate the funding of other early stage businesses.