Decentralized Autonomous Organization

Definition

1. From the Wikipedia:

"A Decentralized Autonomous Organization (often abbreviated "DAO"; sometimes referred to as a Fully Automated Business Entity or Distributed Autonomous Corporation/Distributed Autonomous Company, often abbreviated "FAB" or "DAC") is a decentralized network of narrow-AI autonomous agents which perform an output-maximizing production function and which divides its labor into computationally intractable tasks (which it incentivizes humans to do) and tasks which it performs itself. It can be thought of as a corporation run without any human involvement under the control of an incorruptible set of business rules. These rules are typically implemented as publicly auditable open-source software distributed across the computers of their stakeholders. A human becomes a stakeholder by buying stock in the company or being paid in that stock to provide services for the company. This stock may entitle its owner to a share of the profits of the DAO, participation in its growth, and/or a say in how it is run." (https://en.wikipedia.org/wiki/Decentralized_Autonomous_Organization)

2. Dennis McKinnon, Casey Kuhlman, Preston Byrne:

"A ÐAO is an algorithmically-governed programme that, in using trustless decentralised computing, can serve as a way to formalise multilateral relationships or transactions outside of traditional legal architecture (see the essay Formalising and Securing Relationships on Public Networks by Nick Szabo to learn more on the subject).

In legal terms, a ÐAO is therefore a medium for two or more people to conclude agreements or otherwise associate with others in a predictable way. The fact that a ÐAO built on a blockchain operates itself in accordance with pre-defined rules and cryptographically secure architecture means that its users can reliably expect instructions which they broadcast to be consistently and securely executed.

When viewed through such a lens, Bitcoin itself is a ÐAO, albeit a very early one capable of executing only the simplest one-way transactions. Until recently, ÐAOs capable of a higher degree of sophistication existed only in theory." (http://hplusmagazine.com/2014/06/17/eris-the-dawn-of-distributed-autonomous-organizations-and-the-future-of-governance/)

3. Max Hampshire:

"Decentralised Autonomous Organisations (DAOs) are organisations that are instantiated on a blockchain, and are constituted of interacting Smart Contracts: computer programs that are also instantiated on a blockchain. Smart Contracts are able to hold their own cryptocurrency wallets, they can self-execute on the occurrence of a certain event or state and can be interacted with (somewhat) like traditional web applications.

What makes DAOs interesting is that they inherit the characteristics of blockchain technology that make it such an attractive technological substrate to build upon in the first place. Blockchain technology enables the creation of entire organisations which can be transparent and are decentralised, free of being rooted in (and thus accountable to the laws of) any particular nation state. Most importantly for this essay, they are even able to act autonomously, free of the needs of human intervention and management." (https://botclub.hetnieuweinstituut.nl/en/discourses/bot-club-legal-bots-conceptual-implications-future-blockchain-infrastructure)

In a business/economics context

William Mougayar:

"“The key objective of a DAO is value creation or production, and to make that happen, there needs to be a specific linkage between user actions and the resulting effects of those actions on the overall value to the organization.”

“Usage without value linkage is a waste and will result in a failure backlash. A new DAO is like a startup. It requires a product/market fit, business model realization and a lot of users/customers.”

The utility role of the token is a primary consideration in the success of the models that intend to exploit their powers. Tokens are multi-purpose instruments, and we are beginning to see more clarity in how they are being applied." (https://medium.com/@wmougayar/tokenomics-a-business-guide-to-token-usage-utility-and-value-b19242053416)

Description

From a DAO to a DPO, i.e. Distributed_Programmable_Organization

SenseLab:

"A DAO, or “Distributed Autonomous Organisation,” is a next-generation outgrowth of the blockchain technology underlying Bitcoin. Simple transactions between two parties are replaced by “smart contracts” which can involve any kind of engagement and any number of parties. Customizable spaces of interaction can be built on top of the underlying architecture, enabling a diversity of self-defining projects to cohabit the same ecosystem and enter into mutually beneficial relation. With this ability, the Distributed Autonomous Organization evolves toward the Distributed Programmable Organization. Post-blockchain architectures are already emerging that have even more flexible, lower-cost, rhizomatic architectures operating on the peer-to-peer model. These make it possible to design alternative models embodying an ethos of sustainable economic and social cooperation that is integrally built into the systems architecture at all levels.

These developments open new possibilities for collective projects to invent their own self-sustaining creative economies, operating not in competition with each other but in a shared, open-source environment based on notions of the “common” (or, more radically, what Fred Moten and Stefano Harney call the “undercommons”). Collective initiatives can invent their own autonomous model, combining collaboratiive work tools, a decentralized, self-administering governance system, and an internal micro-economy that can be interlinked to the cryptocurrency markets or invent its own dedicated forms of value." (http://senselab.ca/wp2/immediations/3eprocessseedbank/)

Typology

By Andreas Freund and Danielle Stanko:

"Based on available research, decentralized socioeconomic models, also often referred to as a Decentralized Autonomous Organization (DAO) or Commons6 structure typically have three main components (Giotitsas and Ramos 2017; Filippi et al. 2007):

• Entrepreneurial Common (EC): An EC is the commercial interface with external ecosystems and gives funds it raised from selling goods and services or other activities such as investments in other ecosystems in the form of tokens to the For-Benefit Common (FBC) and receives goods & services to market and sell from the Production Common (PC) in return. This requires exchange between an EC token and Fiat and a PC token that is governed by the FBC. Tokens generally represent a unit of value as defined by the participants of a DAO, and there may be many tokens within a DAO. In addition, the EC is responsible for financial and monetary policy in the DAO since issuing a token is effectively creating a currency with all the accompanying complexities. We will discuss this in more detail when we discuss our proposals for the coexistence of decentralized economies and competitive markets;

• Production Common (PC): A p2p group that produces goods and services collaboratively based on the purpose of the ecosystem as established in the FBC. A participant’s contributions are valued in PC tokens which can be exchanged to EC tokens or other tokens through an exchange utility, as detailed out in one of our four proposals below. Assets created in this common are held in common by the FBC with claims rights by the contributors based on their value contribution to the asset in order to enable a fair sharing of value generated both commercially and through reputation;

• For-Benefit Common (FBC): The FBC is the governance common that is responsible for setting the DAO vision and impact goals, sets consensus rules and incentives for the DAO commons, sets the exchange rules for the EC and PC Tokens within the commons and externally to other ecosystem tokens and fiat, sets the ownership/membership and sharing rules for the DAO commons, defines and enforces reputation also in relation to non-DAO reputation measurement and management models, sets collaboration and giving rules with internal and external entities, and acts as the interface to not-for-benefit entities etc.

This three-zone model is designed to

• Insulate the economically vulnerable FBC and PC from extractive external markets through the EC commons by limiting token exchanges between the common markets that have direct interfaces to competitive markets.

• Enable social impact results through the FBC without a strong dependency on market results. The FBC decides the use of funds coming from the EC. As a result it is independent of “shareholder value” as defined by external and extractive markets; therefore it is accountable to the PC and EC participants.

• Allows the EC to focus on raising funds for both the FBC and PC either through selling products and services or raising funds for future products and services and social impact efforts.

• Enables the PC to focus on core competencies to create new products and services aligned with the overall DAO values independent of the EC.

It is worth noting that decentralized economies as described above typically have three characteristics in common (Commons Transition Primer 2018, Commons-Based Peer Production Directory 2018, Giotitsas and Ramos 2017):

• Open Value Accounting: An accounting system that allows one to record not only tangible assets and assess their value in a unit of value measure, but also to record tangible and intangible value contributions from participants to an asset and subsequent value translation into a unit of value measure such as a token in a decentralized socioeconomic model;

• Decentralized Commons Market: A decentralized marketplace for the free exchange of assets and services governed by business rules established by a governing commons through participant consensus. The decentralized marketplace is transparent and has verifiable and marketplace transactions. In order to motivate participation in a decentralized commons market (DCM), a DCM has an incentive model for both tangible and intangible value contributions and open asset ownership representation through a set of defined unit of value measures such as tokens. The rules for DAO membership and voting are normally based on consensus processes;

• DCM Reciprocity: Reciprocity in this context means that the return on investment beyond a certain value7 is capped but not frozen by requiring reciprocity contributions to the DCM in the form of tangible or intangible value contributions that equal or exceed returns. Example: For a return of a 100 token investment in a DCM asset beyond say 10 tokens, an actor needs to make a value contribution after applying an exchange rate of token to utility token quantifiably equivalent to 1 utility or 1 reputation token for every token earned beyond 10 tokens.

As we will see below, this is in stark contrast to competitive markets.

Central to making the three zoned model operate is effective governance. There is an evolving literature on the governance of decentralized markets discussing issues and challenges creating inefficiencies and potentially additional costs as well as benefits and efficiencies." (http://www.mdpi.com/1911-8074/11/2/26/htm [1])

Characteristics

Characteristics

Primavera de Filippi:

"Most of these definitions include the following distinctive characteristics:

● DAOs enable people to coordinate and self-govern themselves online. Although no mention is made as to the minimum size of the group, the term “organization” is generally understood to refer to an entity comprising multiple people acting towards a common goal , rather than a legally registered organization.

● A DAO source code is deployed in a blockchain with smart contract capabilities like Ethereum—arguably always a public blockchain.

● A DAO’s smart contract code specifies the rulesfor interaction among people —although it is unclear to which extent there may be other governance mechanisms that can affect or overrule such code.

● Since these rules are defined using smart contracts, they are self-executed independently of the will of the parties.

● The DAO governance should remain independent from central control: e.g. some definitions specifically refer to self-governed (De Filippi and Hassan 2018), self-organizing (Singh & Kim 2019), peer-to-peer and democratic control (Hsieh et al., 2018).

● Since they rely on a blockchain, DAOs inherit some of its properties, such as transparency, cryptographic security, and decentralization." ([2])

History

1. Roy Walker:

"Early DAOs:

The history of DAOs is very short as there are few that have been successful to date. Most people consider bitcoin to be the first DAO as it has a “pre-programmed set of rules, functions autonomously, and is coordinated through a distributed consensus protocol”. However, more sophisticated DAOs were made possible by Ethereum’s scripting language. The first DAO to be created through Ethereum smart contracts was Digix Global. Digix sought to tokenize gold using Ethereum. The idea was that Digix would store physical gold in a safe house in Singapore. 1 DGX would represent 1 gram of physical gold. After Digix Global fully built out the platform, the governance was then run by the DigixDAO, which traded under the DGD token. Therefore, any fees accumulated from owning or transacting DGX accrue to DGD token holders. Digix held its ICO on 3/30/16 and is still in operation today.

Another notable DAO is Bitshares. Bitshares is a decentralized cryptocurrency exchange. This differs significantly from the other centralized crypto exchanges (such as Coinbase, Kraken, Bittrex, etc.) as it allows holders of BTS to vote on the strategic direction of the exchange. The decentralized model is said to provide several advantages, including security and anonymity.

Unfortunately, the history of DAOs would be incomplete without talking about the rise and fall of “The DAO” (the story is described in more detail here if you’re interested). The DAO was developed by the Slock.it team in 2016. The idea was for the DAO to act like a venture fund, where community members would submit proposals for potential projects and the token holders would decide whether or not to fund it. After announcing the idea and developing the code, the next step was to raise capital. The DAO ultimately raised approximately 12.7 million ether, which were worth approximately $150 million at the time.

Unfortunately, the DAO’s code had a slight flaw, which was exploited by a hacker in June 2016. This demonstrated one of the downsides of a DAO model: every decision requires consensus…including changes to the code base. The DAO could not patch up the bug in time and the hacker ultimately stole 3.6 million ether. Another issue that this hack exposed was that, while the Ethereum blockchain is secure, apps that are built on top of it can be hacked. Prospective token purchasers need to be wary of this potential issue.

Luckily, the hacker did not get away with the Ether. The funds were subject to a 28 day holding period and Ethereum was able to complete a hard fork in the interim. Following the hack, multiple exchanges de-listed DAO, which began its downward spiral. One year following the hack, in July 2017, the SEC ruled that tokens offered by the DAO were securities and subject to federal securities law. This was the final nail in the coffin for the DAO and served as an important lesson for future decentralized organizations.

While many have proclaimed DAOs to be the “future of work”, the jury is still out on whether this is a legitimate model."

(https://medium.com/all-things-venture-capital/intro-to-vc-the-history-of-blockchain-17ec65dfcf78)

2. The Lao:

"One of the first substantive experiments with the use of smart contracts to manage and coordinate economic activity was The Decentralized Autonomous Organization (known as The DAO). In early May 2016, The DAO was launched on Ethereum, animating the thoughts and imagination of developers and technologists around the globe. The DAO aimed to operate as a venture capital fund for the crypto and decentralized space. The lack of a centralized authority reduced costs and in theory provided more control and access to the investors.

At the beginning of May 2016, a few members of the Ethereum community announced the inception of The DAO, which was also known as Genesis DAO. It was built as a smart contract on the Ethereum blockchain. The coding framework was developed in open source by the Slock.It team, but it was deployed under “The DAO” name by members of the Ethereum community. The DAO had a creation period during which anyone was allowed to send Ether to a unique wallet address in exchange for DAO tokens on a 1–100 scale. The creation period was an unexpected success as it managed to gather 12.7M Ether (worth $150M at the time), making it the biggest crowdfund ever. If still running, The DAO today would manage assets north of $2 billion.

In essence, the platform would allow anyone with a project to pitch their idea to the community and potentially receive funding from The DAO. Anyone with DAO tokens could vote on plans, and would then receive rewards if the projects turned a profit. With the financing in place, things were looking up.

Despite the potential promise of The DAO to fund promising projects in the Ethereum ecosystem. The DAO lacked a legal structure and ran afoul of U.S. securities laws. As outlined by the United States Securities and Exchange Commission (SEC) in a 21(a) report, the offer and sales of digital assets by “virtual” organizations are subject to the requirements of the federal securities laws. In the case of The DAO, the SEC found that The DAO tokens were securities and therefore subject to the federal securities laws. The tokens were offered by a core organization and held out the promise of a profit. As a result, future DAOs that seek to provide members with the opportunity for profit, in general, will need to register offers and sales of such securities unless a valid securities law exemption applies. Any tokens related to the ownership interest of a for-profit DAO must trade on registered exchanges, unless they are exempt, to protect investors and to make sure they receive appropriate disclosures. The SEC reiterated that laws do not evaporate just because an organization relies on blockchain technology.

Separate and apart from the concerns flagged by the SEC, The DAO had other lingering issues. Due to a (now) infamous technical flaw, one or more hackers were able to drain The DAO of a portion of its assets creating confusion as to both the liability of the hacker, as well as the liability of The DAO members to one another. Because The DAO was organized as a for-profit venture, in many jurisdictions (including the US), The DAO likely would have been considered an unincorporated partnership, creating knotty legal questions about liability for the loss of funds." (https://medium.com/openlawofficial/the-lao-a-for-profit-limited-liability-autonomous-organization-9eae89c9669c)

Next Generation DAOs

The Lao:

"Despite these technical and legal challenges, the luster of DAOs has not dulled. Over the past several years, we’ve seen a number of projects seeking to organize as decentralized autonomous organizations and increased tooling (from Aragon and others) to make organizing and managing these entities easier and simpler. Developers are experimenting with new governance models and new bottom-up approaches to organizing social and economic activity.

Moloch is one such emerging blockchain-based governance model that has narrowly focused its technical and game theory design choices to coordinate charity grants for Ethereum projects, pushing its core governance to a vote-weighted multi-signature smart contract with a “ragequit” mechanism that allows its membership to opt-out and receive a proportion of the custodied funds equal to their voting weight at any time.

In this way, participating Moloch DAO members are able to retain control over their contributions and resist attacks with additional protections, such as anti-dilution scripts that ensure that the combination of a proposal and related Moloch ragequitting will not cause greater than three times the dilution to any member." (https://medium.com/openlawofficial/the-lao-a-for-profit-limited-liability-autonomous-organization-9eae89c9669c)

Discussion

by VITALIK BUTERIN:

"In the developed world, the hope is that there will be a massive reduction in the cost of setting up a new business, organization or partnership, and a tool for creating organizations that are much more difficult to corrupt. Much of the time, organizations are bound by rules which are really little more than gentlemen’s agreements in practice, and once some of the organization’s members gain a certain measure of power they gain the ability to twist every interpretation in their favor.

Up until now, the only partial solution was codifying certain rules into contracts and laws – a solution which has its strengths, but which also has its weaknesses, as laws are numerous and very complicated to navigate without the help of a (often very expensive) professional. With DAOs, there is now also another alternative: making an organization whose organizational bylaws are 100% crystal clear, embedded in mathematical code. Of course, there are many things with definitions that are simply too fuzzy to be mathematically defined; in those cases, we will still need some arbitrators, but their role will be reduced to a limited commodity-like function circumscribed by the contract, rather than having potentially full control over everything.

In the developing world, however, things will be much more drastic. The developed world has access to a legal system that is at times semi-corrupt, but whose main problems are otherwise simply that it’s too biased toward lawyers and too outdated, bureaucratic and inefficient. The developing world, on the other hand, is plagues by legal systems that are fully corrupt at best, and actively conspiring to pillage their subjects at worst. There, nearly all businesses are gentleman’s agreements, and opportunities for people to betray each other exist at every step. The mathematically encoded organizational bylaws that DAOs can have are not just an alternative; they may potentially be the first legal system that people have that is actually there to help them. Arbitrators can build up their reputations online, as can organizations themselves. Ultimately, perhaps on-blockchain voting, like that being pioneered by BitCongress, may even form a basis for new experimental governments. If Africa can leapfrog straight from word of mouth communications to mobile phones, why not go from tribal legal systems with the interference of local governments straight to DAOs?

Many will of course be concerned that having uncontrollable entities moving money around is dangerous, as there are considerable possibilities for criminal activity with these kinds of powers. To that, however, one can make two simple rebuttals. First, although these decentralized autonomous organizations will be impossible to shut down, they will certainly be very easy to monitor and track every step of the way. It will be possible to detect when one of these entities makes a transaction, it will be easy to see what its balance and relationships are, and it will be possible to glean a lot of information about its organizational structure if voting is done on the blockchain. Much like Bitcoin, DAOs are likely far too transparent to be practical for much of the underworld; as FINCEN director Jennifer Shasky Calvery has recently said, “cash is probably still the best medium for laundering money”. Second, ultimately DAOs cannot do anything normal organizations cannot do; all they are is a set of voting rules for a group of humans or other human-controlled agents to manage ownership of digital assets. Even if a DAO cannot be shut down, its members certainly can be just as if they were running a plain old normal organization offline." (http://bitcoinmagazine.com/10055/cryptographic-code-obfuscation-decentralized-autonomous-organizations-huge-leap-forward/)

DAO's as a governance modality for new productive organizations and corporations

Lawrence Lundy of Outlier Ventures, from the latest newsletter:

"We now have a new invention, the decentralised autonomous organisation. I'm not convinced that a collection of smart contracts running on a blockchain-based network will replace the limited liability company in its entirety.

But at the core of the DAO model are two things:

• Anyone can contribute and be rewarded based on resource contribution (money, time, expertise, etc.) (regulation notwithstanding)
• Anyone can vote and influence the resource allocation process

Just like the invention of limited liability, the DAO could encourage company formation and financing by making it easier and cheaper to start a company and get funding. The DAO solves for the flaw in the joint-stock limited liability company whereby only a few people can buy shares and get rewarded in the form of dividends, but more importantly, take decisions that impact billions of users. Users of the network contribute all of the value but get no reward. Nor do they have a say in how the network is run.

DAOs are the antithesis of Big Tech today, in which founders have full control, arguably with some accountability from activist investors and board members. But this is a small group of people who collectively decide what we read, watch, listen to and therefore over time, believe. The DAO is transparent and open; users decide on the allocation of resources. There is a lot of work to be done on exactly how to organise DAOs to achieve optimal outcomes. Still, experiments abound with Aragon, Colony, DAOStack, MakerDAO, and MolochDAO amongst others. DAOs are bringing together engineers, economists, lawyers and governance experts to rethink the fundamentals of what organisation can be in a 2020 context.

I think DAOs will have the most significant impact in the short term as they become formalised as new productivity software. An Asana Board DAO where each completed task executes a smart contract to draw down a bounty, for example. As Web3 emerges, DAOs will become the de facto organisational structure; digital and global with broad-based governance. An organisational structure fit to support trusted peer-to-peer interactions." (Outlier Ventures newsletter, march 2020)

DAO's and increased social inequality

David Morris:

"Who will own the DACs, who will profit from them – and whether ownership or profits are even the right terms – are still open questions. Larimer, from his tone to his pitch, seems relentlessly fixated on the idea that the funders of DACs will reap profits. The investment-like structure of DACs, funded by cryptocurrency, means that those who establish them, back them early and host them will benefit when their associated cryptocurrencies rise in value. Such enviable roles are reserved largely for the technically savvy, resource-rich, and well-educated: in other words, the already privileged.

On the other hand, the open nature of DACs might allow those who were excluded from traditional entrepreneurial channels to gather capital support for their ideas. Imagine startups in developing countries, frictionlessly funded by international backers in roles somewhere between investors and philanthropists. Whatever ominous developments the new technology portends for the managerial classes, it is still possible to imagine DACs contributing to the larger cause of global justice. After all, if they don’t care about borders, who is to say they won’t work to flatten the huge inequalities between nations?" (http://www.zoeticnetworks.com/2015/02/02/david-morris-will-the-autonomous-economy-set-us-all-free-or-just-make-the-rich-richer/)

A Technocratic Vision

Julian Feder:

"the Idea of a Decentralized Autonomous Organization that truly isn’t controlled or owned by any particular individual isn’t only revolutionary on a political or social level. One is almost tempted to call it an ontological revolution, one that redefines the basic categories of what is objectively real and what is simulated.

Classic distributed organizations such as shared stock companies, nonprofits or cooperatives simulate distribution. Their existence depends on laws, terms and regulations – guarded and executed by armed men and women (mostly men) – which restrict the otherwise total control of the individuals in power.

In comparison, a DAO, once in place, is a self-existing entity that transcends time, space and the personal existence of specific individuals and their ability to use institutional force. It is in many ways something entirely new; one could call it a new form of social automatisation, solely made out of information.

The idea of an organization without the need for an headquarter, which exists almost outside of physical space and that cannot be captured or seized by any kind of military force, would have sounded almost religious just a few decades ago. The bewildering implications of this new potential form of human organization seem to a 20th century mindset almost as alien as the landing of a flying saucer on the lawn of the Whitehouse, albeit less photogenic.

It might sound pathologically optimistic, if not straight out insane, but this new ability we are developing – to create autonomous complexes made out of information that exist in some kind of digital hyperspace and that have the ability to execute themselves and self-regulate while abiding nowhere and everywhere at once, with no servers or strings attached, might not just revolutionize governance and modes of production, but might very well transform our very understanding of nature itself.

Why would one claim such venturesome preposterousness? Well, because in the few decades in which our information technologies developed from handwritten manuscripts to mass distributed copies of disembodied information, our universe expanded from a few dots encapsulated in transparent spheres to a mind boggling vastness reaching to the outer ends of infinity, that’s why. In the end, it was our ability to conduct an (almost) global dialog, which transcended the ingenuity of the particular individual that brought us the telescope, calculus and eventually a new and alien universe.

Furthermore, this new technology of Decentralized organizations, databases, applications, contracts and what have you, are not just a new tool for exploring the world. To a large degree they are a new territory of existence to explore: a dimension of autonomous information.

But then again, It might very well be too early to jump to specific conclusions. We wouldn’t expect a 16th century peasant to foresee late consumer capitalism and to understand what an employee of Goldman-Sachs does for a living – let alone contemplate on interstellar spaceflight. But luckily time seems to speed up as history progresses so hopefully it won’t be too long until we’ll be granted with a glimpse of a world to come." (http://magazine.backfeed.cc/decentralization-and-the-transcendence-of-space-time/)

Decentralization as a Means for Developers and other Stakeholders to Take Back Control from Centralized Platforms

Chris Dixon:

"Let’s look at the problems with centralized platforms. Centralized platforms follow a predictable life cycle. When they start out, they do everything they can to recruit users and 3rd-party complements like developers, businesses, and media organizations. They do this to make their services more valuable, as platforms (by definition) are systems with multi-sided network effects. As platforms move up the adoption S-curve, their power over users and 3rd parties steadily grows.

When they hit the top of the S-curve, their relationships with network participants change from positive-sum to zero-sum. The easiest way to continue growing lies in extracting data from users and competing with complements over audiences and profits. Historical examples of this are Microsoft vs Netscape, Google vs Yelp, Facebook vs Zynga, and Twitter vs its 3rd-party clients. Operating systems like iOS and Android have behaved better, although still take a healthy 30% tax, reject apps for seemingly arbitrary reasons, and subsume the functionality of 3rd-party apps at will.

For 3rd parties, this transition from cooperation to competition feels like a bait-and-switch. Over time, the best entrepreneurs, developers, and investors have become wary of building on top of centralized platforms. We now have decades of evidence that doing so will end in disappointment. In addition, users give up privacy, control of their data, and become vulnerable to security breaches. These problems with centralized platforms will likely become even more pronounced in the future.

Cryptonetworks are networks built on top of the internet that 1) use consensus mechanisms such as blockchains to maintain and update state, 2) use cryptocurrencies (coins/tokens) to incentivize consensus participants (miners/validators) and other network participants. Some cryptonetworks, such as Ethereum, are general programming platforms that can be used for almost any purpose. Other cryptonetworks are special purpose, for example Bitcoin is intended primarily for storing value, Golem for performing computations, and Filecoin for decentralized file storage.

Early internet protocols were technical specifications created by working groups or non-profit organizations that relied on the alignment of interests in the internet community to gain adoption. This method worked well during the very early stages of the internet but since the early 1990s very few new protocols have gained widespread adoption. Cryptonetworks fix these problems by providing economics incentives to developers, maintainers, and other network participants in the form of tokens. They are also much more technically robust. For example, they are able to keep state and do arbitrary transformations on that state, something past protocols could never do.

Cryptonetworks use multiple mechanisms to ensure that they stay neutral as they grow, preventing the bait-and-switch of centralized platforms. First, the contract between cryptonetworks and their participants is enforced in open source code. Second, they are kept in check through mechanisms for “voice” and “exit.” Participants are given voice through community governance, both “on chain” (via the protocol) and “off chain” (via the social structures around the protocol). Participants can exit either by leaving the network and selling their coins, or in the extreme case by forking the protocol.

In short, cryptonetworks align network participants to work together toward a common goal — the growth of the network and the appreciation of the token. This alignment is one of the main reasons Bitcoin continues to defy skeptics and flourish, even while new cryptonetworks like Ethereum have grown alongside it." (https://medium.com/@cdixon/why-decentralization-matters-5e3f79f7638e)

More Information

• video intro https://www.youtube.com/watch?v=KGSePa9GwxA

• Eris

• Project Douglas

• "The LAO: A For-Profit, Limited Liability Autonomous Organization".