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More than $1 billion has been directed to DAOs, or Decentralized Autonomous Organizations. Did you know?

A DAO uses blockchains to organize the functioning of governing entities, facilitating collective participation and production and common goods. Several prominent DAOs have appeared in the Ethereum community, and in some places bridges are already beginning to be built between governing entities and these new entities.

As in a traditional structure, DAOs have a set of fundamental principles and rules to establish the governance structure. However, DAOs can engage in some activities completely autonomously. For example, they can buy and sell cryptocurrencies based on a defined program. This is made possible by smart contracts, with terms written in code and used in blockchain networks such as Ethereum. This means that a DAO can function without necessarily needing human decision makers, making decisions more decentralized for users.

Traditionally, people created centralized entities, such as companies, to ensure that their members worked together for a specific goal. But on the Internet, this isn’t practical, and there may be members you won’t even meet, but who want to work towards the same thing you do. DAOs then come to solve this coordination problem. Because they are decentralized, they end up being more transparent, and are also open to people from all over the world. The goal of DAOs is to create organizations where all members can actively participate.

Although DAOs end up having many similarities to traditional corporations, they are only recognized as legal entities in a few places, such as the state of Wyoming, or in Malta. While there is growing interest in more countries making this recognition official, the fact that DAOs are so new means that most of them operate without some sort of protection for their members against debts faced by the DAO.

Despite their focus on blockchain, DAOs may well change more traditional areas, such as real estate or the way we set up companies. The possibility of physical ownership in addition to digital ownership opens up more opportunities for DAOs, and could lead to even more changes in the way we do things.

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