Discovering DAO: How is this related to cryptocurrency

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Introduction

In the world of cryptocurrencies and blockchain, there are many complex terms and concepts that may be incomprehensible to beginners. One of them is DAO or the so-called Decentralized Autonomous Organization. In our today's article, we will try to figure out what it is and how it is related to cryptocurrency.

What is a DAO?

Let's start with the fact that a DAO is an organization managed in whole or in part by a decentralized computer program, where voting and finance are processed by using a blockchain. In general terms, DAOs are member-owned communities with no centralized leadership. The legal status of this type of business organization is unclear.

DAO and cryptocurrency: How are they connected?

DAOs are closely related to cryptocurrency, as they use blockchain technology to ensure the security and transparency of their operations. Blockchain is a digital registry that tracks all transactions and does not allow them to be changed or deleted after recording. Such an approach ensures the reliability and security of transactions in the DAO.

Examples of DAO

One of the best examples of a DAO was The DAO. It collected 3.6 million ether (ETH) as a reward for mining Ethereum. In May 2016, it was worth more than $70 million. Later, it was hacked, and $50 million in cryptocurrency was stolen just a few weeks later. Such a terrible operation was canceled in the following weeks, and the money was recovered by using a hard fork of the Ethereum blockchain.

Managing the DAO

The management of the DAO is coordinated using tokens or NFT, which grant voting rights. Joining the DAO is limited to people who have confirmed ownership of these management tokens in a cryptocurrency wallet. At the same time, one can pass their membership to another person. Governance is conducted through a series of proposals on which members vote through the blockchain, and ownership of a large number of management tokens often means greater voting power.

Legal status of the DAO

The legal status of a DAO may vary depending on the jurisdiction. For example, on July 1, 2021, Wyoming became the first US state to recognize the DAO as a legal entity. However, many previous approaches to blockchain-based companies have been recognized by the U.S. Securities and Exchange Commission as illegal offerings of unregistered securities.

Conclusion

The DAO is a unique phenomenon in the world of cryptocurrencies, which allows one to create decentralized organizations without centralized management. They offer new opportunities for management and coordination but also present a number of legal and technical challenges. Despite such a situation, they are an important part of the cryptocurrency ecosystem and are likely to play an increasingly important role in the future.

Test Your Knowledge

1. What is a DAO?
   a. Decentralized Autonomous Organization.
   b. Decentralized Automated Operation.
   c. Decentralized Analytical Operation.
2. How are DAOs related to cryptocurrency?
   a. They use cryptocurrency to finance their operations.
   b. They use blockchain for security and transparency of operations.
   c. They use cryptocurrency to purchase goods and services.
3. How are DAOs managed?
   a. By centralized management
   b. By using tokens or NFT granting the right to vote
   c. By using artificial intelligence.

Correct answers: 1 a, 2 b, 3 b.