The Dao (Organization)

What is bitcoin?

Bitcoin is an open source software code that implements a decentralized, peer-to-peer digital cash payment system that does not require any trusted intermediaries to lớn operate (e.g., banks or payment companies). The Bitcoin Whitepaper was published in 2008 by a developer (or development team) under the pseudonym Satoshi Nakamokhổng lồ, & was soon followed by the first ever “coin” created in the form of a digital record in 2009. At the time of writing (October 2017), Bitcoin hit another record high price of over $4400, forming an economy of $73 billion.

Initially, Bitcoin’s thiết kế aimed khổng lồ solve the inherent inefficiencies and agency problems arising from the intermediated và centralized banking Mã Sản Phẩm. Typically, khổng lồ make an international wire transfer between, say, Canada & Trung Quốc, the money goes through four different banks (including two “correspondent” banks), two national payments systems, and an international settlement service (e.g., SWIFT). A standard international payment takes between 3 và 15 business days to complete, depending on the destination country, & involves multiple agents such as bank tellers, employees, và managers from the aforementioned financial institutions. Expensive sầu bank fees và exchange rates apply.

By contrast, Bitcoin is distributed in cyberspace across thousands of network nodes, & is inherently borderless. Payments are validated and updated by the network every 10 min. Intermediaries are not required (e.g., no correspondent banks are required). There are no bank fees for transactions, but users typically pay a small fee to lớn payment validators (known as “miners”—khổng lồ be discussed further below). Whereas for an international transfer of $5000, a bank wiring would charge a fee of around $125, a fee of around $1 would be expected for a Bitcoin transfer. It is no wonder, that Bitcoin is seen as a potentially significant disruptor of the current financial system based on banking.Footnote 1

Bitcoin as a decentralized autonomous organization

Bitcoin “runs a payment system…employs subcontractors who are miners… paid for with newly issued bitcoin shares in itself” (Vigna & Casey năm ngoái, p. 229, quoting Larimer 2013).Footnote 2 The Bitcoin system thus shares the four core features comtháng lớn all conceptualizations of “organizations”: it is a “multi-agent system <…> with identifiable boundaries and purpose <…> towards which the constituent agents’ efforts make a contribution” (Puranam 2017, p. 6). But in contrast lớn traditional organizations, Bitcoin does not have sầu a CEO or top management team but instead developers who “write the rulebook,” i.e., define governance rules for the program (Narayanan et al. năm nhâm thìn, pp. 173–175). Bitcoin does not have sầu headquarters, subsidiaries, or employees, but a distributed network of users và miners who collect, verify, and update transactions on a shared public ledger that is publicly auditable. Decisions on code modifications are made through community-based democratic voting processes, backed by miners’ computing power for implementation (Narayanan et al. năm 2016, pp. 173–175).

Two significant innovations underpin Bitcoin: a technological one, namely the public & distributed ledger technology called “blockchain,” which securely maintains an immutable record of all user transactions, and an organizational innovation, namely, the existence of an open network of users with special roles và rights called “miners”, who lend computing power to secure the network in exchange for newly minted bitcoins and voting rights with respect to lớn future protocol revisions (Davidson et al. 2016a, 2016b).

These innovations have led some industry experts to lớn conceive of the Bitcoin system as the first real-world implementation of a new type of organization called “decentralized autonomous organization” (hereafter, DAO). Following prior work, we define DAOs as non-hierarchical organizations that persize và record routine tasks on a peer-to-peer, cryptographically secure, public network, and rely on the voluntary contributions of their internal stakeholders to lớn operate, manage, và evolve sầu the organization through a democratic consultation process (Valkenburgh et al. 2015; Dietz et al. 2016).Footnote 3 DAOs coordinate routine tasks through cryptographic routines (as opposed lớn human routines). Open source code defines rules for miners khổng lồ agree on a shared history of transactions recorded securely và redundantly across network nodes, in order to lớn avoid having a single point of failure (Nakamoto lớn 2008). While Bitcoin was the first instance to lớn be identified as a DAO, a few hundred more have then been created since 2009 (e.g., Ethereum, Litecoin).

Bitcoin vs. banks

Bitcoin represents a partial substitute for banks, albeit with notable differences.

First, one cannot open a ngân hàng tài khoản without providing a number of official identification documents, which in the developing world often prevents access to lớn banking. By contrast, anyone can become a Bitcoin user & freely obtain a pseudonymous Bitcoin address (i.e., analogous lớn a bank account) not tied ex ante to a real-world identity. In essence, a Bitcoin address is a public key cryptographically linked to a private key acting as a password lớn spend funds. This enables a new privacy Model that separates identity from transactions (Nakamokhổng lồ 2008). The vertical bar in Fig. 1 demonstrates where Bitcoin breaks the information flow as compared to banks.

Fig. 1

Second, at an aggregate màn chơi, traditional banks store transaction histories in a centralized fashion. Users only get lớn view their personal ngân hàng statements and must trust that their information is protected from both cyberattacks và employee misconduct. Traditionally, banks employ bank clerks lớn process payments. Human agents are prone to lớn agency problems which can lead khổng lồ misconduct such as theft. The cost of paying the human agents is also not trivial. With Bitcoin, all transactions are recorded publicly and electronically onkhổng lồ the immutable “blockchain” stored in a distributed fashion across thousands of network nodes—thereby making records easier lớn maintain & cyberattacks unlikely to lớn succeed (because the information on transactions in this case is not held in one central location). The blockchain technology provides the multi-site copies of “ledgers”—which are really aggregations of past transactions (e.g., like a bank trương mục statement). It also provides encryption lớn validate transactions as valid or invalid (e.g., like personal security device we currently use for online banking, which generate a unique transaction specific signature based on a personal key).

Whereas banks prevent double-spending by checking for funds sufficiency in a centralized VPS, in a peer-to-peer system like Bitcoin, payees cannot verify whether payers still have sầu the funds they clalặng to lớn have due to lớn unpredictable network delays (e.g., an tin nhắn sent now can reach its recipient before another email sent a minute earlier). To resolve this issue, Bitcoin relies on cryptographic routines khổng lồ verify, timestamp, and order transactions in a non-reversible way, thereby avoiding the need for human reconciliation. This process is called “mining.” The key idea is that somebody in the network will legitimately time stamp a bloông chồng of transactions, but we cannot predict who that will be (e.g., replacing a bank clerk, who can be corrupted khổng lồ fake time stamps, with a system that cannot be corrupted).

Bitcoin “hires” miners to process transactions in this way through a “competitive sầu bookkeeping” process (Yermachồng 2017). Mining is a process whereby specific network nodes (“miners”) arrange new transactions into lớn a sequence, and time-stamp them by solving a puzzle of sorts: by guessing an arbitrarily long number after making billions of random guesses. The guessing process can be made faster by committing more computing power lớn the network. Thus, a miner’s probability of being able khổng lồ provide the “proof-of-work” required lớn update the ledger is proportional khổng lồ the computing power s/he controls. The computing power committed every 10 min to blocks of transactions recorded in the ledger accumulates and forms a barrier to hacking, making it practically impossible to edit past transaction records contained in the blockchain (i.e., the proof-of-work would have sầu lớn be entirely redone for every bloông chồng added after the edited one, which is too computationally intensive and too costly lớn achieve). Miners get rewarded in Bitcoin for their work, which involves costs in hardware và electricity, as per the Bitcoin protocol.

Consensus mechanisms: novel solutions khổng lồ the universal problems of organizing

Whereas mining organizes Bitcoin payment processing, “humans must first decide what protocol to run before the machines can enforce it (Lopp 2016)”. To distinguish the ngắn gọn xúc tích of blockchain from its governance & re-thiết kế process, we define machine consensus as the process whereby blockchain produces agreement (aided by miners efforts) on the ordering of transactions through the time-stamping created by miners succeeding at guessing a random number; and social consensus as the process whereby miners vote on protocol update proposals introduced by volunteer developers. Machine consensus và social consensus fuel Bitcoin’s novel organizational mã sản phẩm and become integrated through the quality mining process based on computing power provision.

Machine consensus: the bitcoin payment system

Proof-of-work mining is a computationally intensive & highly redundant process that generates inefficiencies in terms of energy consumption. But as a result, the blockchain record cannot be tampered with at a profit. With machine consensus, tasks are allocated based on commitments in computing power, & rewarded competitively based on the outcome of mining. All mining-related data are publicly auditable for the entire network. Table 1 shows how Bitcoin as a payment system organizes differently from banks và payment organizations.

Table 1 Banks và payment organizations vs. Bitcoin on their forms of organizing
Full form size table

Social consensus: protocol upgrades

Underlying the Bitcoin payment system is the blockchain software supported by ongoing protocol updates (Wang & Vergne 2017). In terms of governance, miners’ voting on protocol update proposals resembles the community-based management of open source software development (OSSD) observed for projects such as Linux. It aligns stakeholder expectations (Lopp 2016) và facilitates knowledge sharing, problem solving, và the realization of collective sầu outcomes (O"Mahony và Lakhani 2011). Like OSSD, Bitcoin software development is also open source, decentralized, and community-based. Bitcoin communities of volunteer software developers collaborate in a non-hierarchical network and self-select into lớn tasks & roles based on expertise & preferences. Over time, a team of core Bitcoin developers has formed và become increasingly influential in the community, even though their work is not funded by a centralized organization, but by a sponsorship program that relies on donations.

The key organizational novelty of Bitcoin as compared khổng lồ OSSD is that in addition lớn developers, miners play an equally important role in protocol modifications. Specifically, the Bitcoin software is updated through Bitcoin improvement proposals (BIPs), which are thiết kế documents proposing new features, changes, or processes for the protocol. BIPs allow developers lớn make proposals on software updates that miners must vote on to trigger implementation. Proposals are first reviewed by BIP editors, & miners then include a “yes” or “no” vote in a bloông chồng during the polling period (e.g., 100 blocks starting today, namely a 1000-min period). Voting power is proportional khổng lồ the computing power a miner contributes to lớn the network. A code change will only be implemented when a majority of 55% is obtained for a given proposal (Franteo 2014, p. 90). Table 2 compares Bitcoin software development with OSSD along four core dimensions of organizing: task division, task allocation, reward distribution, and information flow (Puraphái mạnh et al. 2014).

Bitcoin’s true organizational novelty lies in how mining determines task division (based on computing power contribution), task allocation và reward distribution (through competitive sầu bookkeeping), và information flows (on the blockchain and in the network). While task integration in traditional settings focuses on rules & processes designed in large part by managers (Okhuysen & Bechky 2009), with Bitcoin, machine consensus (e.g., competitive bookkeeping) and social consensus (e.g., voting) are coordinated through miners—a br& new class of stakeholders.

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Miners consent to lớn playing by the rulebook, but they can vote to change it using the influence derived from their computing power. However, it is important to lớn note that the Bitcoin code does not assume away the problem of agency costs. Rather, Bitcoin explicitly deals with these long-standing problems by incorporating counterbalancing incentives in the code, making the payment system incorruptible.

In contrast khổng lồ OSSD contexts, Bitcoin relies on a mixed community of volunteer developers and paid miners who jointly revise the organizational kiến thiết through BIPs. Put simply, Bitcoin offers a novel solution lớn “the universal problems of organizing” (Puranam giới et al. 2014) by involving a new class of stakeholders, incentivized by both machine consensus algorithms and social consensus routines, with the design of an organization whose parameters cannot be changed unilaterally by any stakeholder group, và whose routine operations cannot be derailed by insiders’ covert misconduct.

Similar blockchain implementations: cryptocurrencies

Bitcoin is the first & most established DAO implemented to lớn date. Since Bitcoin, there have sầu been over 800 other DAOs created based on similar designs, most of which are considered to be “cryptocurrencies” (i.e., like Bitcoin, they allow for value exchange). At the time of writing, cryptocurrencies form an economy of $110 billion and make a real impact on the world. Some cryptocurrencies are developed based on the Bitcoin source code (e.g., Litecoin, Namecoin, Dash), while others started from scratch with their own protocol (e.g., Monero, Ethereum). Variations have sầu also emerged lớn embrace a wider range of applications other than just payments, such as decentralized domain registration (Namecoin), smart contracts (Ethereum), and privacy (Monero). Proof-of-work mining is not anymore the only way to lớn achieve machine consensus, as alternative sầu or complementary schemes such as proof-of-stake (whereby the security proof is based on the amount of cryptocurrencies payment validators hold) or proof-of-burn (whereby the network is secured by validators allocating coins to an unspendable address) have been developed and implemented in recent years. Preliminary retìm kiếm suggests that DAO performance varies with the extent of governance decentralization (Hsieh et al. 2018), so understanding how various forms of machine và social consensus contribute to lớn the success and failure of DAOs represents an exciting avenue for future organizational research.

Companies of the future?

Research indicates that the technological innovation potential behind cryptocurrencies stands as the key driver of their market value (Wang and Vergne 2017). But, as the Economist (2015) rightly points out, blockchain công nghệ has far-reaching applications beyond cryptocurrencies and payments. In fact, blockchain-based organizing and the resulting DAOs have sầu the ability khổng lồ replace centralized intermediaries in other applications requiring complex coordination such as asset ownership tracking, trade financing, digital identity provision, supply chain traceability, and more. Besides, in the last 3 years, more than 50 new ventures received seed funding using blockchain-powered “initial coin offerings”, thereby bypassing, at least partly, the use of venture capitadanh mục intermediaries lớn obtain funding faster & at more favorable valuations (e.g., in 2014, Ethereum raised $18.4 million in a few days và is now valued at $34 billion). DAOs are on the rise, and it is an exciting time for management and organizational scholars to lớn address this emerging phenomenon with new theory and solid empirical retìm kiếm.

Philip Anderson

The authors’ article “Bitcoin và the Rise of Decentralized Autonomous Organizations” performs the welcome service of highlighting for organization theorists how so-called cryptocurrencies (more properly, tokens) are at root about organizing, not about money. We are living through an era of ferment in token technology. Bitcoin itself is unlikely khổng lồ become the dominant kiến thiết for tokens because its design limits the speed at which transactions can be confirmed & registered. (A typical credit thẻ network can process about 1500 times as many transactions per second.) A superior alternative sầu has already emerged that enables “smart contracts,” although its first-generation programming language will likely be superseded many times, just as COBOL gave way khổng lồ more advanced tools for computing.

Even blockchain, the database architecture underpinning all tokens today will likely be supplanted by superior variants. As the authors note, the innovation of blockchain giải pháp công nghệ introduced some brilliant ideas for dealing with agency problems, incentivizing transparent, fraud-resistant bookkeeping that establishes publicly who owns & has a right khổng lồ exchange tokens. Faster and more elegant designs may well replace blockchain, but the underlying idea it represents—a distributed ledger—will endure, transforming how people & things organize and transact with one another. By analogy, every element of today’s automotive sầu công nghệ is vastly superior to lớn the 1901 Curved-Dash Oldsthiết bị di động, the first mass-produced oto, but the idea it pioneered of an autonomous, engine-powered vehicle that travels across roads or open country transformed the world.

A distributed ledger is hosted và updated on a decentralized network of computers that notoàn thân owns. As the authors note, the key innovation is a novel way to lớn store & update a chain of information (e.g., a series of exchanges, or immutable copies of documents) that anyone can examine and verify without altering. Like cash, tokens in distributed ledgers are anonymous, although governments could easily compel taxpayers lớn reveal the addresses they own. Yet most cash exists today not as bills or coins but as computer data showing how much people have on deposit. These data are held in private, centralized ledgers controlled by institutions such as banks. Distributed ledgers are public and require no trusted intermediary khổng lồ verify who has title lớn what.

Financial intermediaries enable strangers to transact because a state-backed trusted institution guaranteed transactions. Most money in global financial systems is actually credit extended by these institutions, not currency printed by governments. Periodic credit crises undermine confidence in these trusted institutions, as does the abuse of seignorage—the return to lớn the issuer (e.g., a government) from the right to create money—typically by over-inflating a currency. A host of tokens using distributed ledgers are competing to lớn institutionalize ways of creating trust among mỏi strangers that does not depover on trusted intermediaries.

For this reason, the impact of tokens on organizations is likely to be even greater than its impact on monetary economics. The authors note that the way in which miners are incentivized by seignorageFootnote 4 khổng lồ perkhung distributed work facilitates decentralized task allocation, task division, reward distribution, and information flow. Blockchain giải pháp công nghệ & some clever mechanisms built into lớn Bitcoin và its descendants create trust ahy vọng self-interested actors at two levels. For token users, they minimize countertiệc nhỏ risk, assuring token buyers that the anonymous address at the other end of the transaction actually owns the token. They also transparently document & preserve sầu each element of the blockchain in a way that is difficult to lớn spoof or alter. For miners—parties who supply the computing power lớn run the system—they provide a means of compensation for providing infrastructure & running its software for the benefit of the users. The miners, not the users, have voting rights that allow them khổng lồ decide when and how the software or its rules of use may be altered.

A decentralized autonomous organization (DAO) as described by the authors is an organization that uses software rules to lớn exeđáng yêu organizational routines, plus votes from some class of members khổng lồ alter & extend those routines. No direct management is required. In Bitcoin, the miners are the voters, but this is not strictly necessary.

For example, a group of neighbors could club together lớn buy a shared asphối, such as a fleet of bicycles. Each member could receive sầu tokens based on his or her investment, spending them when they use the asset. Spent tokens could be reissued according lớn rules, incentivizing people who perkhung useful services such as storing or repairing the asphối. Token owners could vote on changes khổng lồ rules or policies and make decisions such as when lớn buy new bicycles. The distinction between “owners,” “contributors,” và “users” is blurred because the same token acts as a voting right, a size of compensation, and a medium of exchange.

Organizations have sầu long used what amount khổng lồ private currencies lớn incentivize ownership, contribution, và usage. Shares of stoông chồng are frequently used khổng lồ acquire companies or remunerate employees. Loyalty programs or privileged benefits are commonly used as a non-cash incentive for employees or customers. In a DAO, a token can represent ownership, compensation for contributions, và payment for usage all in one. Just as banks create money by extending credit, organizations can use tokens khổng lồ create and sustain an internal economy whose currency can be converted into fiat money but does not depkết thúc on it.

In these early days of distributed ledgers và tokens secured by cryptographic methods, DAOs remain rare. Some organizers have raised money via initial coin offerings (ICOs), exchanging tokens for cash. These tokens secure voting and perhaps usage rights for projects that range from explicit khổng lồ vague. For instance, an ICO can be pledged lớn the development of a software program. Token buyers may be compensated by low-cost or privileged access to the program as users. They may also have sầu rights to participate revenues earned by the program, và they may be compensated for contributions to lớn the software. Token holders may or may not have voting rights that govern how the software is developed. A central, hierarchical organization could also make those decisions, with the token’s value depending on the chất lượng of those choices and how well they are executed.

Distributed ledgers enable DAOs but will also find many applications inside more traditional organizations, as a transparent means of decentralized task allocation, task division, reward distribution, and information flow. For example, firms may develop internal reputation mechanisms enabled through the exchange of tokens, recorded in a distributed ledger không lấy phí for all to lớn inspect. Those who own tokens can use them khổng lồ reward cooperation from others, or khổng lồ exchange them for other things of value, such as vacation days. This could enable far more peer-to-peer collaboration aao ước people who do not already know one another well, without needing a common supervisor as a trusted intermediary.

Transaction-cost economics suggests that the basic reason why organizations exist is to minimize transaction costs—if everybody toàn thân could make, execute, và adjudicate contracts at low cost, that would be the most efficient way to manage the four basic functions of organization design. As the authors note, the rise of automated “smart contracts” can dramatically lower the cost of contracting & lessen the risk that people fail lớn deliver what they promise. Consequently, it is frequently conjectured that cryptocurrencies & distributed-ledger công nghệ will lead to massive sầu disintermediation and the supplanting of organizations with loose networks of contributors who are linked by contract. A DAO is an example par excellence.

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Yet decades of retìm kiếm have explained why organizations arise & persist for reasons that go beyond minimizing transaction costs. Such factors as shared purpose, identity, collective sầu reputation & status, and the ability khổng lồ habituate pro-social behaviors help explain why organizations endure. Distributed-ledger technologies & tokens that ride on top of it will doubtless make a massive impact on organizations và exchange, và some DAO’s will successfully supplant other ways to solve economic problems, as the authors suggest. Once a dominant thiết kế emerges & distributed ledgers become viable substitutes for other database architectures, tokens will also revolutionize the way organizations manage their routines while sustaining useful forms of central control. Bitcoin itself will likely become a historical artifact, but it has opened the door for a flood of organizational innovation that turns out lớn be far more important than the term “cryptocurrency” would suggest.