Wednesday, October 4, 2017

DAOs that have ICOs are not really DAOs.

BlockChain/Ethereum is said to enable the creation of Decentralized Autonomous Organizations with the use of a technology called smart contracts.

Even though, it is theoretically possible to do so, the creation of a DAO by performing an initial Coin Offering is intrinsically contradictory. If it was truly a DAO, the price of the coins would be zero.

Non-zero value means that there is an asymmetry in power and control and thus the DAO would't be decentralized or autonomous. To understand why this is the case, one needs to translate the decentralization promise of Ethereum / BlockChain to social / economic relations of power and control.

BlockChain's main feature is that it enables the decentralization of the infrastructure and the open access of the data. Any asymmetric power relations that arise from the control of the servers , software and data are made impossible.

The infrastructure is though not the only way that enables asymmetric power relations.

Let me give you an example . The company that created the ripple protocol and network has open sourced its software. At the same time, they created billions of coins. They gave away some for free and the other , they kept to sell.
  One could say that anyone could just take their software and create their own network with their own coins. Unfortunately, this is not possible. First of all, it requires a team of professional programmers that are able to fix the bugs that are to be found. They also provide expertise to organizations that want to join the network. As soon as  Banks and other organizations join the system, it immediately gains value that is not present in the software itself. This is called the network effect. After a while, the value of the system is big enough that is difficult to create another network.
  For this reason, the price of ripple coins is not zero. For the same reason, the network is not decentralized.

When we talk about DAOs, we need to distinguish between the decentralization of power and control and the decentralization of the infrastructure. The blockchain only enables the latter.

Let me make another example to show you that any real DAO would be unable to have an ICO whose price is not zero, let us look at a much easier example.

Let us say that you bought a song at price x. Assuming that you are able to copy the song and give it to anyone you want at zero cost without repercussions, noone else would buy another copy as one would simply get it from you.
The price of the song thus almost immediately becomes zero.

If someone was able to simply copy the code and data that reside in the blockchain and create a copy of the previous DAO, then the price of the coins would be zero as well.

Thus,
if a DAO has an ICO, it is not a DAO.

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