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Decentralized Autonomous Organization (DAO)

Imagine a World, where Contracts are part of digital code and stored in a transparent shared database where are protected from deletion, tampering and any modifications

Each Agreement, Process and task and payment would have a digital record and signature that could be identified, validated, stored and shared.

Individuals, Organizations, machine and algorithms will be able to freely interact with each other with very little friction and minimal transaction costs.

The DAO

It’s a startup DAO, programmed by slock.it. It launched in April 2016 with $150 million in funding. At that time, The DAO had 14% of all ether token issued till date and code for it was open source.

The DAO was launched for organizing both commercial and nonprofit enterprises using Decentralized Business Model with no official Board of directors and management. It relied on Smart Contracts (Automated rule scripts) that mentioned what can happen in the system.

What Problem did DAO intend to solve?

What if some decision gets approved and any party don't like it, how can that party opt-out from DAO then?

Solution

An Exit door called “Split Function” was created.

Using this Split function, the user would get back the ether that he had invested and, if

he wants, he could even create his own “Child DAO”. User can split off with multiple DAO token holders and create his own Child DAO and start accepting proposals.

However, there is one condition that after splitting off from the DAO user will have

to hold on to his ether for 28 days before he can spend them.

“The DAO” Attack

In June 2016 An unknown Hacker exploited a loophole in DAO and transferred away $50 Million (one-third of the total fund). The hack happened because of an issue in DAO. However, stolen funds were still in Child DAO.

Accessing of the fund was not done by Hacker yet because DAO Smart Contract explicitly stated that any of invested ether out of DAO would not be accessible for 28 days

So Ethereum community and the team decided to take action for stolen funds and three solutions were pointed out:

1. No one does any changes as any attempt to redirect funds would violate Blockchain Philosophy “Immutability: Code is Law”.

2. Soft Fork (Blockchain would be backwards compatible after some changes)

3. Hard Fork (Blockchain would split, resulting in Split of ETH and ETC (Ethereum Classic))

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