Decentralized Autonomous Organizations (DAOs) have long caught the public imagination as one of the main use cases of blockchain technology. Defined as organizations and groups that do not operate centrally or hierarchically, DAOs represent another shift towards a decentralized world that has united the Bitcoin community since its inception. Perhaps the best-known example of a DAO was The DAO, an organization that built on top of the Ethereum blockchain and later ceased to exist due to a vulnerability that caused the organization to lose a third of its funds. Despite this incident, DAOs have regained popularity, and many new organizations such as the Maker DAO have adopted the model in recent years. The definition of a DAO is constantly evolving, and projects often claim they are a DAO to capture their “hype” even though they are completely centralized in operation. In this article we will argue that the Bitcoin network was the first decentralized autonomous organization that existed and remains the most influential / successful among its competitors. Bitcoin’s decentralization, community, and reach make it an example of what other DAOs should be striving for from both a technical and an organizational perspective.
At its core, a DAO is a collection of individuals who make decisions based on majority consensus and are controlled by rules that are encoded in a computer program. DAOs are executed entirely by computer programs, with minimal to no human control or interference. DAOs are gaining popularity because of their autonomous nature; The ability of organizations and groups to make decisions and improve without submitting to centralized authority is invaluable in a borderless society. DAOs are largely the product of the same cultural movement that led to the creation of a peer-to-peer currency in the first place. In fact, the emergence of Bitcoin in 2008 can very accurately be described as the creation of the first DAO. Bitcoin has had the essential characteristics of a DAO since its inception: decentralization and autonomy. The creation of the Bitcoin network was, so to speak, the first successful implementation of a DAO and thus set the framework for future projects. We now move on to a discussion of examples that provide further evidence that Bitcoin and the associated blockchain network can be defined as a DAO.
Bitcoin’s original purpose was to enable a global payments network based on a peer-to-peer network, thereby eliminating centralization or the need for a trusted third party. Satoshi Nakamoto specifically introduced the concept of a peer-to-peer network to solve the double spending problem, which refers to one party to the transaction using the same coin in two or more separate transactions. While the peer-to-peer network was originally designed to solve the double spending problem on digital currency without relying on an intermediary, it eventually expanded its use cases to become the defining aspect of the blockchain. Perhaps the most intriguing use case of the peer-to-peer network has been Bitcoin Improvement Proposals (BIPs). BIPs are software improvement proposals that have the potential to transform the Bitcoin blockchain significantly. An example of a GDP is Segregated Witness (SegWit), which was proposed by Pieter Wuille in 2015. BIPs certainly have the potential to fork the Bitcoin blockchain, and this has been the case several times in the past. Perhaps the most interesting aspect of GKS, however, is the way they are implemented. While a traditional founding model would have focused on the approval of the development or leadership team, Bitcoin leaves that to the community. More specifically, the community has an open discussion with applicants and provides feedback before proceeding with any particular proposal. The most fascinating aspect is what happens after a certain proposal is published. The decision of what constitutes the current version of “Bitcoin” actually depends on the miners, who can specify which particular version of Bitcoin they are executing in their blocks of transactions. The following picture shows how a GKS is checked and implemented:
Source: River Financial
This approach is one of the first examples of recording votes and decisions for a non-transactional problem on a blockchain, setting a precedent for software improvements and changes through an open source and decentralized protocol. BIPs are just one of many examples of the extent to which Bitcoin’s peer-to-peer network is decentralized. The fact that anyone who is a miner on the Bitcoin network can actively participate in the development of the protocol is one of the few reasons why other DAOs should strive to follow the Bitcoin model.
While most can agree with the innate decentralization of the Bitcoin network, not all agree that it is completely autonomous. In this respect, many have preferred to refer to the Bitcoin network as a DO (decentralized organization) instead. One of the biggest criticisms the Bitcoin network has faced is that the organization is not actively seeking new members or updating itself based on computer logic. This has supported the notion that Bitcoin is semi-autonomous rather than fully autonomous. However, this criticism stems from the variable definitions of autonomy related to the blockchain community rather than a shortcoming of the Bitcoin network itself. The reality is that the network actively coded the membership hierarchy and proportion based on in a computer program Data is determined, transactions and communication between the participants are automatically validated and its history is automatically updated. While smart contract technology has further developed the autonomy of a blockchain technology, the innovation present in the Bitcoin network is the inspiration for these new inventions. Just as Isaac Newton once announced that he was “standing on the shoulders of giants”, new blockchain technologies and DAOs stand on the shoulders of the success of Bitcoin.
This is a guest post by Archie Chaudhury. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
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