Chapter 2: Decentralized Autonomous Companies (DACs)
Let's start by exploring the concept of a Decentralized Autonomous Company. From now on, we will call them DACs.
We will explore this concept by looking at the words themselves in reverse order.
First of all, a DAC is a company. That means it has many familiar components that ordinary companies have as well.
DACs have revenues. They have costs. They have either a profit or a loss. They have employees. They have shareholders. Shareholders have voting rights. They have a charter (a set of rules by which the company operates). They have a product. And hopefully most of all, they have customers.
Let's have a look at the next word. Autonomous. Autonomous means that these companies are self-governing and are not subject to control from outside sources. In fact, they have built-in defense mechanisms to protect themselves from those outside influences that would seek to regulate them.
And finally, Decentralized means the company does not exist in one or even a few centralized locations. It is distributed on many computers all around the world, and within each computer the entirety of the company exists. Even a successful attack against many instances of the company is futile as it easily replicates itself and heals. This feature makes them extremely secure and far less vulnerable to attacks.
The first time I heard the phrase "Decentralized Autonomous Company," it all sounded a bit wishy-washy and didn't make a lot of sense to me.
How do you have an autonomous company that runs by itself?
But then I found out that I was already very familiar with a DAC. In fact, Bitcoin was the worlds first DAC.
I think it will help to examine this comparison.
Bitcoin has a product. It is a payment service. It competes with banks, Visa, PayPal, Western Union, and others for sending payments from one party to another all around the world.
It has revenues. Bitcoin charges small fees on some transactions.
Bitcoin has shareholders. The shareholders are you and I, the people who actually own Bitcoin. Let's say you own 1% of all Bitcoin in existence. That is like owning 1% of stock in the Bitcoin company. As the company grows, hopefully the share price goes up. If the company shrinks or fails, the share price drops.
Bitcoin has employees. They are called miners. Miners secure the network and facilitate these payments.
Bitcoin has costs. It pays those employees via two mechanisms. The first is the fees we spoke about earlier. 100% of these fees are passed onto the miners as their salary. The second is through the dilution of shares. Bitcoin regularly creates new Bitcoin, called block rewards, and gives it to the miners to supplement their salary. Because Bitcoin is also a currency, we call that inflation. In the context of a DAC it is called share dilution. Eventually this dilution will reduce to zero and miners will have to work for fees only.
Of course Bitcoin has customers. Every person who sends a Bitcoin payment is a customer.
Bitcoin has voting rights. When changes to the system like code updates and hard forks are proposed, the community decides if they wish to accept those changes.
The community of miners who are paid to secure the network currently holds Bitcoin's voting rights although it is not a formalized process. While some miners hold Bitcoin, some do not. In this way, it is Bitcoins employees and not its owners that hold Bitcoin's voting rights. Through the lens of a DAC, this is not desirable. It would be preferable if the shareholders had voting rights.
Bitcoin has a charter. This is the Bitcoin code that all parties agree to operate by.
As you can see, the analogy of Bitcoin being a company is very useful and quite accurate.
Bitcoin is also decentralized and autonomous, and therefore Bitcoin is the world's first DAC.
You now have a definition of a DAC, as well as an example of a DAC that you are probably already familiar with. Let's expand this concept to think of other applications of DACs.
I have recorded an interview with Dan Larimer, the lead developer and visionary behind Bitshares. Dan collaborated with Satoshi Nakamoto on the bitcoin forums during the early days of Bitcoin. He later invented the phrase DAC. Bitshares is the very exciting DAC that is the focus of this book.
In the video we go through some other examples of potential DACs. I think that by the end of this video, you will have a very clear understanding of what a DAC is. You will also learn how there are many other industries that will likely be disrupted by DACs built on Blockchain technology.
This should really get your mind racing with some of the amazing potential behind this technology.
You can see the interview here: http://www.bitshares.tv/chapter2