June 2016 – Page 2 – John Hardy Developer

Originally shared by Daniel Estrada

What is the DAO?

> If the Dao is made clear, it is not the Dao (Zhuangzi)

> The unity is said to be the mystery (Laozi)

// If you’ve seen people talking about the DAO over the last few weeks, they probably weren’t talking about the ancient Chinese philosophy of Laozi and Zhuangzi, pertinent though it may be. It’s more likely they were talking about Distributed Autonomous Organizations, the first of which launched on Ethereum with $165 million dollars worth of funds last week. It was the largest crowdfunding project in the history of the internet. (https://goo.gl/1icCpv)

The DAO is the first really interesting thing to happen in the blockchain community in a long time. If you haven’t been paying attention recently (I haven’t), consider this a ping on your radar. If you have no idea what I’m talking about or why you should care, I’ll try my best to explain with this post. I’ll start from near the beginning and go slowly. Please, ask questions.

But first: don’t feel lost, you aren’t alone! Last weekend I was at a party with my friend Jon Lawhead, who is usually savvy with tech and internet trends. So I was surprised when I asked for his thoughts on the DAO and he had no idea what I was talking about. When you’re plugged into a niche community, it’s easy to forget that most people aren’t paying attention when it does something interesting. To get others excited, you first have to bring everyone up to speed.

Before we talk about the DAO, let’s talk about Ethereum.

Okay, what’s Ethereum?

You’ve probably heard of Bitcoin, the digital currency based on the blockchain protocol. If you don’t know or care about bitcoin, or if the words “digital currency” makes you blind with homicidal rage, don’t tune out yet! I won’t be talking economics or offering investment advice, and the words “fiat currency” will not come up again, I swear.

Forget about Bitcoins. The important technology is the blockchain: the distributed database system that tracks all transactions on a publicly shared ledger. Don’t think about the blockchain like a new form of money. Think about it as a way to digitize social interactions so they can be handled by our computers. The blockchain is to money what written language is to spoken language. Both forms of language are means of communication, but writing turns speech into a method of large scale governance, making way for an agricultural revolution and population explosion. Similarly, both money and the blockchain allow for distributed processing of social value, but the blockchain allows these processes to operate with a complexity unimaginable using money alone.

For instance, blockchain proponents talk about “smart contracts”. The “dumb” contracts of today are typically written by lawyers with extensive knowledge of legal arcana, and then interpreted and enforced by the so-called “justice system”. Every step of this process is controlled by human expert (lawyers, judges, bureaucrats, etc.) who, through some mix of error, bias, and corruption, introduce frictions and inefficiencies into the justice system. Consequently, “justice” today is a slow, expensive, and unreliable process, biased by power, corruption, and history, grossly inefficient for accomplishing anything that needs to get done.

One way to reduce these frictions is to make the contracts themselves “smart”. A smart contract has explicit, formally computable terms and conditions that can be controlled with the precision of a digital clock, thus eliminating much of the need for expert interpretation and judgment, and the frictions they introduce. The goal is not to eliminate the justice system, but rather to automate it and give the front end a user-friendly make-over. In some ways, the “smart contract” is a science fiction ideal; the blockchain community is attempting to realize these ideals with good old fashioned software engineering.

If you’re still confused about the blockchain, here are some resources that might help:

https://en.wikipedia.org/wiki/Block_chain_(database)

https://www.youtube.com/watch?v=r43LhSUUGTQ

If you have questions, please ask! But don’t worry too much about these technical details. After all, you can use the internet without understanding how TCP/IP works. Eventually you’ll be able to use the blockchain without understanding how it works, too. What you need to understand now is that a lot of serious researchers are hoping that the blockchain will become a core technology powering the internet of the future. The blockchain isn’t just for economic transactions or smart contracts. The same underlying technology it can be used for data and identity security and other forms of distributed data management. These are all major issues with the internet of today, and many people are looking to the blockchain for a fix, with the hope that it will eventually become as central to the Internet protocol suite as TCP.

But success is not guaranteed, and these early experiments will ultimately decide this technology’s fate. For some criticism of the blockchain, check here: https://goo.gl/XrRl1a My goal in this post is not to convince you that the blockchain will run the future. I’m just explaining why people are working on the blockchain, and what kind of systems they’re hoping to build.

Bitcoin was the first popular application using the blockchain that caught the public’s attention. But most of the serious research has gone into a different blockchain technology called Ethereum. Ethereum uses its own blockchain distinct from Bitcoin, with its own “coin” called Ether, which can be traded for USD, BTC, Euros, and other currencies on the open exchange markets. Ethereum has attracted interest from research groups at MIT, IBM, Microsoft, and other major developers because it was the first blockchain technology that could embed executable programs into the blockchain transactions. Bitcoin only stores information about its coins, but Ethereum allows users to store programs that get executed as coins are exchanged. This gives the Ethereum platform native support for developing smart contracts. The DAO is the first large scale, distributed smart contract system of this type.

You can learn more about Ethereum here:

https://www.ethereum.org/

https://en.wikipedia.org/wiki/Ethereum

https://www.reddit.com/r/ethereum/

https://www.reddit.com/r/ethereum/comments/3vxvlx/starter_guide_almost_all_the_links_youll_need_to/

http://www.vox.com/2016/5/24/11718436/ethereum-the-dao-bitcoin

My impression is that most of the serious research on the blockchain is being developed on Ethereum, and that other blockchains (including Bitcoin and its many, many clones) are starting to be abandoned as Ethereum becomes the dominant blockchain protocol. For instance, major alt-currency exchanges like Coinbase are starting to focus on Ethereum (http://goo.gl/dEsBny), and are starting to lose interest in Bitcoin and other blockchains. This article below from The Economist shows the relative price fluctuations of Ether and BTC, and makes it clear that Ethereum is where all the action has been over the last few months.

http://www.economist.com/news/finance-and-economics/21699932-bitcoins-resurgence-may-be-short-lived-etherised

We’re now ready to talk about the DAO. Ethereum is the major blockchain platform that allows for the development smart contracts, and the DAO is the first large scale contract system that runs on Ethereum. 14% of all Ether is now controlled by the DAO, and (as I mentioned earlier) it is the largest crowdfunding campaign in history on any platform, raising 50% more than the second highest crowdfunded project, Star Citizen. (https://en.wikipedia.org/wiki/List_of_highest_funded_crowdfunding_projects)

Okay, so what is the DAO?

DAO stands for “distributed autonomous organization”. The DAO is the first collective agent to operate on the blockchain. The DAO operates a little like an investment firm: shareholders in the DAO purchase DAO tokens with Ether, and the tokens give them a vote in how the DAO’s funds are used. Then other people (called “contractors”) can make proposals to the DAO for how to spend its money, and anyone with a DAO token can vote on whether or not to fund the proposal. If the contract gets the support of the DAO token holders, funds are allocated for the proposal. There’s also a special group of people, the “curators”, which consist of a small group of core DAO developers that have some control over which proposals are brought before the DAO. There are 10 curators for the DAO, listed here:

https://daohub.org/curator.html

Again, this set up is similar to how an investment firm operates, with the following important difference: investment firms put their trust in its chief executive and board of directors to make the final decisions on investment plans. The DAO, in contrast, has no executive clique: DAO token holders vote directly on the proposals, with no one mediating the process but the curators, who do not have a direct influence over the vote (and can be fired by the token holders as they see fit). This is how the DAO is “distributed” and “autonomous”: it’s actions emerge directly from the votes of its shareholders, with minimal bureaucratic power structure mediating the process.

You can read more about the DAO here:

https://daohub.org/

https://forum.daohub.org/

https://thedao.slack.com

https://www.reddit.com/r/TheDao/

https://en.wikipedia.org/wiki/The_DAO_(organization)

https://en.wikipedia.org/wiki/Decentralized_autonomous_organization

https://forum.daohub.org/t/guide-and-help-for-me-and-other-dao-beginners/4388

https://blog.daohub.org/getting-to-know-dao-2-0-64d93e330c6d#.iax3onvtc

http://www.vanbex.com/the-vanbex-report/to-dao-or-not-to-dao

http://www.wired.com/2016/06/biggest-crowdfunding-project-ever-dao-mess/

A little more background:

The idea of a “dao” has been around since the cyberpunk novels of the 80’s, but was first spelled out explicitly by one of the lead Ethereum creators, Vitalik Buterin, who also sits as one of the DAO curators. But this dao was built by slockit, a blockchain start-up based in Germany. Slock.it is a traditional company with a CEO, and doesn’t plan to run itself as a DAO anytime soon. But the company is interested in developing alternative organizational structures for the same reasons motivating all the Ethereum developers. It’s worth noting here that none of the core Slock.it team are curators on The DAO. Here’s a hangout from earlier today with Griff Green, the community organizer for Slock.it, discussing the company’s role in developing the DAO.

https://www.youtube.com/watch?v=sl_sJruaGzc

https://slock.it

https://blog.slock.it/the-inexorable-rise-of-the-dao-2b6e739b2615#.wdiacmobz

Although Slock.it continues to work with the DAO community to develop the code, the DAO is completely open source, which means anyone can take the code and run their own DAOs, issuing their own tokens to collect funds, appoint curators, and reviewing proposals. So we should distinguish The DAO (all caps) from other daos that might be started by other groups. The DAO is the specific dao that generated $165m dollars in its opening weeks, but there can (and will) be many other daos besides The DAO. There is much discussion on the forums linked above about starting other daos with specific goals, like addressing health care reform and other expensive and politically difficult issues. The community imagines a future where every group that has a project (down to the limit case of the individual) creates a dao to manage that project. So if your friends are having a party, for instance, you can throw together a dao not just to manage the funds but also to drive a collective consensus on what it will involve. There have also been arguments that decentralized, leaderless organizations aren’t a good model for effective business or governance (see: http://goo.gl/FaCYaO). So again, these technologies are still being developed, and their success is anything but certain.

Okay, so the blockchain bros ran a hugely successful crowdfunding campaign for an open-source “autonomous” investment firm. Neat. Anything else?

Yes! I haven’t mentioned the most interesting and controversial features of The DAO, and why this whole event has generated so much media buzz. Anyone can start their own DAO from the source code. But existing DAOs also have a way of generating new DAOs, through an action called “Splitting”. Say a DAO has a bunch of funds, but the community disagrees about how to spend it. The DAO has a built in mechanism for allowing the two parties to take their funds and split off into two separate DAOs, each with their own curators, to use their share of the DAO as they please. In other words, that $165m isn’t locked up among the lucky few who already have DAO tokens. Instead, those funds are “alive” in the sense that the organizations that control that money in the future might look very different from the organizations that control it today. In a very real way, it depends directly on what the token holders do with their votes. So everyone is watching with interest to see what will happen.

But immediately after the initial round of funding closed, the community discovered a number of bugs in the system! These weren’t just bugs in the code, they were systematic flaws in the structure of the DAO itself. There were a number of issues, but they boiled down to this: if some group of token holders knows in advance that they plan to split from the main DAO, they can withhold their vote until the last second to maximize the value of their split. In other words, there’s a small incentive gained by withholding a vote, and this incentive can be abused in clever ways. You can read a more detailed and technical discussion of these issues from the DAO curators themselves, who called for a moratorium on DAO token exchange until these bugs have been fixed.

http://hackingdistributed.com/2016/05/27/dao-call-for-moratorium/

https://docs.google.com/document/d/10kTyCmGPhvZy94F7VWyS-dQ4lsBacR2dUgGTtV98C40/edit

And that brings us up to date. Currently, everything is in limbo as we’re waiting for the core developers to detail the changes they plan to make, and for the whole DAO community to assess the situation and decide on the next moves. The people at Slock.it seem to think the voting process is mostly fine, and that the DAO should proceed as planned, but they also recognize that the behavior of The DAO is somewhat out of their hands. But some curators have been especially critical of the voting process; Vlad Zamfir has even suggested that the easiest solution might be to return all the ether and restart the DAO from scratch. You can see Vlad’s suggestion here, in the Synereo community hangout from June 3rd:

https://www.youtube.com/watch?v=dRVY0QnDlzg

In this discussion, Vlad makes a point that sounds right to me: he says that while he trusts the community to have the best interests of the DAO in mind, he doesn’t yet trust the software in place to ensure that those interests are actually realized in the DAO’s actions. The very fact that there have been such vocal, public criticisms from the core players tells me that they are approaching this in the right way, and that they really want to get it right.

Now that you’re caught up, hopefully you’ll be ready to spot when the next interesting thing happens. You can review all proposals currently before the DAO, including the 46 splits that have happened so far, on the website below. As you can see, most proposals and splits have been used just to test the voting system and see how/whether it works. I haven’t seen major activity of more than a 100 ether or so, presumably to respect the moratorium.

http://vote.daohub.org/

You can get more information below about how the DAO works, how to vote using your ethereum wallet, and lots of other things:

http://daodeepdive.com/

https://blog.slock.it/dao-how-to-vote-video-tutorial-e9919a0fcc1f#.ydueljaax

Quite a lot of my information in preparing this post has come through the Synereo community hangouts. Synereo is another blockchain start-up that has focused on issues related to social networking and communication, and has been in close contact with many of the core DAO curators over the last few weeks. If you’re interested in diving deeper into these issues, I’d recommend watching the last few Synereo community hangouts, and getting involved on the FB groups below:

https://www.youtube.com/watch?v=dRVY0QnDlzg

https://www.youtube.com/watch?v=SJ5SeU4cnKc

https://www.facebook.com/groups/1013726192055203/

https://www.facebook.com/groups/579940655425355/

I prepared this essay to help others catch up to my speed. But I’m not an expert on the DAO or the blockchain, and I may have made mistakes. Please correct my mistakes and help answer questions others have. I’ve tried to stress that things are actively being developed, and there’s still room for interested parties to get involved. The point of these projects is to improve access for everyone, not to hoard power for the lucky few who got in on the early action. Tune in, pay attention, get involved.

Of course, the DAO is obviously a pun on the Dow Jones Industrial Average, but I still find the homonym with the ancient religion to be more instructive. If you’re interested in learning more about Daoism, here are some resources to get you started:

https://en.wikipedia.org/wiki/Taoism

http://ctext.org/zhuangzi

http://ctext.org/dao-de-jing

http://plato.stanford.edu/entries/daoism/

http://plato.stanford.edu/entries/zhuangzi/