 Let's talk about DAOs, or Decentralized Autonomous Organizations. The DAO. The DAO. DAOs. They are some of the most complex entities on the blockchain, and to most people, they are just another blockchain bubble buzzword. But the ideas behind DAOs are relevant to all of us, because DAOs could completely transform how work and social collaboration are organized. I'm Jackson, Director of Video Production at Cointelegraph, and in this video, you'll learn what a DAO is, how they are created, and why they may become a crucial part of our future. Don't forget to subscribe to our YouTube channel for news and videos about crypto. We are the leading channel for crypto news coverage and education. Let's break this DAO thing down. The concept of a DAO was initially developed by this man, Werner Dilger. He was a renowned German computer science teacher who published a work titled, Autonomous Decentralized Organization of the Smart Home according to the principle of the immune system in 1997. In it, Dilger defined the basis of a DAO as a self-sustaining and autonomous system that exists in a futuristic Internet of Things environment. That's a bit of a mouthful. So basically what he's saying is that a DAO is a digital system that runs entirely on its own and interacts with a bunch of other different digital systems. At this time, his idea was impractical and could not be achieved until the arrival of blockchain technology. Today, on its surface, a DAO is an organization just like any other. It's a group of people who gather together with a common goal such as running a company, investing in assets, or developing or sustaining a project. But what makes a DAO unique is that it operates through smart contracts on the blockchain, thus allowing it to be decentralized and autonomous. Let's focus on these three terms because they're the backbone of DAOs. First, let me ask you this. Have you ever worked on a project where someone puts themselves in charge and then runs that project into the ground? Like a school project. Well, DAOs are trying to reduce the risk of poor leadership through decentralization. DAOs are structured as flat hierarchies with the aim of avoiding the concentration of power and resources in a few actors. Compare that to traditional companies which typically have a board of directors, executives, or shareholders that determine the structure, allocation of resources, and direction of the company. So how is this flat hierarchy actually enforced? What stops someone from making a power grab? This is where smart contracts come into play. Smart contracts are essentially self-executing computer code that define the boundaries of interaction between the entities involved. For example, pooling money together from many investors to try to buy something, like the U.S. Constitution. This code doesn't need to be maintained. Once it is written, it can run all on its own. It is autonomous. So you're probably wondering, wait, are DAOs just a bunch of lines of computer code floating in cyberspace waiting to be interacted with? And the answer is yes. That's exactly what a DAO is. It is an organization of a number of smart contracts that anyone can interact with in the same way. When everyone is forced to engage with the same code or rules, the playing field is level. And that's how the flat hierarchy is created. To better understand this, let's take a look at an example. Let's say you and your friends have a common goal. You all meet up on Discord and decide you want to bring back an old company that went out of business. For nostalgia's sake. Well, you gotta gather a bunch of money together so that you can buy the brand rights, hire the lawyer, build out the infrastructure, etc. After you pool all that money together, who's going to manage it? One person? How do you trust them not to run off with it or spend it on a new McLaren P1? I mean, look at that thing. What you do is you ask that friend of yours to software engineer to code you a DAO. Now you and your friends can put your money into a smart contract that, in return, gives you all tokens, which you can use to vote on how to spend the money. But now that all your money is together, you realize you don't actually have enough to buy the rights to that old company. You need to get more people to support this project. So you share the DAO on Twitter, Facebook, and other Discord groups. People like the idea. They remember that old company very fondly. The idea catches fire. People from all over the world are engaging with the DAO, depositing money, receiving governance tokens, and voting on proposals. These are people you and your friends have never met before. But it doesn't matter, because everyone is bound by the rules of a smart contract. All of a sudden, there are millions of dollars in the DAO, and thousands of people following the project on Twitter. There's an article about it on Cointelegraph and Forbes. The goal is becoming a reality. If you think this sounds far-fetched or ridiculous, it's not. This actually happened, and is still happening. Blockbuster DAO, named after the old video rental company, is creating a DAO to transform the brand into the first ever decentralized filmmaking and streaming platform. It is even supported by Michelle Barard, who is the daughter of one of the men who built the original Blockbuster brand. But how is a DAO created in the first place? Typically, a DAO's launch occurs in three major steps. In step one, a developer or a group of developers must create the smart contract behind the DAO. After launch, they can only change the rules set by these contracts through the governance system. In the second step, after the smart contracts have been created, the DAO needs to determine a way to receive funding and how to enact governance. Usually this is done by creating a token for the DAO. People who hold these tokens essentially own equity in the DAO and can use the tokens to vote on proposals, delegate tasks, or participate in expenditures. In the third step, the DAO is deployed on the blockchain and, hopefully, the first creators become unable to influence the project any more than other stakeholders. In fact, the Bitcoin network could be considered the first example of a DAO. As its network grows via community agreements among its miners and node operators. Plus, there is no central governing authority. Another well-known DeFi project that is also a DAO is Uniswap. Uniswap users are not only able to supply liquidity to decentralized exchange, but can also submit governance proposals to the platform. And there is also a new wave of DAO projects powered mainly by NFTs. In these DAOs, owning specific NFTs rather than governance tokens enables participation. Many of these projects appeared last year. In September 2021, a Discord group called Friends with Benefits composed by crypto enthusiasts, artists and NFT collectors raised a total of $10 million when it decided to operate as a DAO. Receiving up to $5 million from the venture capital form Andreas and Horowitz. In November 2021, things took an even more intriguing term. When Constitution DAO gathered support from over 17,000 donors and raised more than $40 million to bid on the rights to acquire an official copy of the U.S. Constitution document in the Sotheby's auction. There is even a DAO dedicated to freeing Julian Assange. You can check out our video here about it. For many, DAOs represent the next step in the evolution of corporations and organizations. The advantages over traditional corporate firms are huge. For instance, it is much easier to evaluate the trustworthiness of DAOs. A traditional organization requires trust in the people leading it. A DAO requires trust in the code. Code is far more concrete than trying to understand human motivations. DAOs are also completely transparent and verifiable. Every single action a DAO takes after being launched has to be approved by the community. And since DAOs have no hierarchical structure, they allow any stakeholder an innovative idea to improve the project that the entire group will consider. But the truth is, decentralized autonomous organizations aren't perfect. They are an extremely new technology. There are concerns regarding their legality, security, and structure. This brings us to the unique case of the DAO. The DAO was one of the most known DAO projects until today. It was built as a company governed entirely by code with no human-led governance. It was also the DAO with the most-ever funding, but is perhaps best known for its demise. The DAO was built on Ethereum in 2016 by the engineers Simon and Kristoff Jents. Their goal was to create the largest DAO of its time. They managed to raise an incredible sum of $150 million, one of the largest crowdfunding campaigns in history. But the dream was short-lived. A vulnerability was discovered in the DAO's code, and a hacker seized $50 million. This was catastrophic for the DAO, and even changed the face of blockchain as we know it today. In June 2016, the Ethereum community controversially decided to hard-fork the Ethereum blockchain as a way to restore virtually all funds to the original contract. This split the Ethereum blockchain into two branches, each with their own cryptocurrency where the original, un-forked blockchain continued as Ethereum classic. All of this shows that, although powerful, participating in DAOs can be a risky endeavor. DAOs could fundamentally revolutionize how companies, organizations, and groups are structured. Anyone can create a DAO to finance projects, govern communities, or to bid for an original copy of the American Constitution. This is what crypto was created for, to create strength through decentralized cooperation. If you enjoyed this video, be sure to like it, leave us a comment below and don't forget to subscribe to our channel. The Cointelegive Cryptopedia is your guide to the chaotic space of blockchain and cryptocurrency.