Update: Slock.it has made it clear that they will not be having an ICO (Initial Coin Offering, similar to an IPO). They’ve opted to seek funding from a third-party DAO that is using their DAO framework code. What this means is that there will be no “official” Slock.it crowdsale. Instead, potential investors can invest in The DAO which in turn will vote on Slock.it’s proposal for their Ethereum computer.
Perhaps you’ve heard the term DAO (Decentralized Autonomous Organization) or one of it’s variants thrown around. To the average person, this probably sounds like gibberish. That’s unfortunate because the potential for DAOs to reshape our world is arguably even greater than that of game-changing inventions like the printing press. The topic of DAOs, like many other topics in the cypherpunk and cryptocurrency community, can evoke a discussion of nearly limitless complexity, but this article will cover only the need-to-know and most interesting aspects of this new technology. Up until a few months ago, DAOs were merely a grand idea that had not been fully implemented in the real world. One company, however, has changed that by creating the first, true DAO codebase. That company is Slock.it.
As Stephan Tual, Founder and COO of Slock.it, puts it so eloquently on the official Slock.it blog:
“A DAO is an organization that’s self-governing and not influenced by outside forces: its software operates on its own, with its by-laws immutably written on the blockchain, not controlled by its creators. DAOs are formed by groups of like-minded individuals with specific projects and goals in mind. Its identity is formed through consensus. Its authority is defined through voluntary endorsement and, ultimately, network effects.”
One way to look at a DAO is to think of it as being an artificially intelligent corporation with it’s morality strictly defined in it’s original code. Stakeholders in the DAO can decide how its capital is used, whether it be to fund little Billy’s lemonade stand or big Bob’s Presidential campaign. The stakeholders aren’t limited solely to a wealthy, elite board of investors though. Anyone who’s willing to participate and purchase even a tiny quantity of the DAO’s cryptotokens will have a say in its direction. Their voice and intentions will be assimilated into the DAO’s personality, Borg-style but without all the scary side effects. This is revolutionary. It means that an investment’s returns will no longer be dependent solely on the success of a few individuals or require trust that they use the investment wisely. In fact, at least in the case of Slock.it’s implementation of the DAO code, should an 80% majority of stakeholders decide that they no longer support how their money is being used, they can vote to have the DAO liquidated and funds returned to the cryptocurrency addresses that initially invested from.
The voting isn’t limited solely to the DAO’s monetary policy, however, as there are many other types of capital. One of the most important is Human Capital. Since DAOs are limited to the digital world, they need agents in the real world to perform physical work. This might be writing code to improve the DAO, marketing, delivering a package, or building infrastructure. Luckily, by using cryptocurrency, it will be extremely easy for these agents to be paid after their work is verified as complete (perhaps via reporters on Augur).
Put simply, DAOs very well could, and in fact should, replace the traditional corporate structure. Many today lament the failure of capitalism, but in America at least, capitalism has not been the dominant political ideology for some time. At best, America is a crony-capitalist nation and at worst a corporatist oligarchy. Special interest groups representing those in power use their money and influence to shape government policy for their own benefit. Unfortunately this usually comes at the expense of the average person. With a DAO, there is little room for corruption, and if there’s any faith in humanity left to be had, malicious lobbyists will never get majority approval to seek nefarious government policy changes. Perhaps someday, we’ll even rely on a system of blockchain-based governance to add another layer of democratic control to the world.
All of this sounds rather ideal in theory, but how will it look in practice? A great example of the benefits DAOs allow can be found by the very company who has created the framework for them. Slock.it, seeks to use the power of the blockchain in the Internet-of-Things (IoT). As a proof-of-concept, they partnered with Canonical (the company behind popular Linux distro, Ubuntu) and Samsung to create a blockchain-powered computer that can be hooked up to…well…just about anything by using Ethereum.
One use case, that is likely the inspiration for the word “Slock,” would be to hook up the computer to a lock. This could be very useful in the sharing economy, particularly for a company such as AirBnB (Get $35 credit if you sign up) where homeowners still frequently have to figure out how to give a key to those spending the night. Stephen Tual elaborates on the Slock.it blog about a funny situation in which he actually locked the only key to a property inside the home when he left. In the future with the power of blockchain, tenants will receive a temporary, cryptographic token that acts as a key to open up a Slock. That token will not be able to be copied, and when the tenant’s stay is over, it will no longer work.
Another interesting use case would be to rent out a bike that you have sitting unused in your garage. This could get a little more tricky as a bike is much easier to steal than a home. Luckily, there are insurance companies specifically created with the sharing economy in mind like SafeShare. Perhaps we will have freelance drone operators available too, who will take to the skies when that bike travels outside of a specified area and snap a picture of the thief. The drone operators could be paid directly with cryptocurrency like Bitcoin and have the evidence they collect be hashed onto the blockchain, proving that the offender took the bike at a specific time in a specific place.
Tying this all in with a Decentralized Autonomous Organization is quite simple. Slock.it will need funding to mass produce their Ethereum computer and to support the developers keeping its code updated. Instead of opting for the traditional crowdfunding model by using Kickstarter or holding a crowdsale, once The DAO is funded, Slock.it will make a formal proposal for funding to it that stakeholders can vote on. Unlike other crowdfunding efforts, there will be no upper limit of how much funding the DAO can initially receive. Due to the hype surrounding the project, it’s very likely that more funds will be given to the DAO than Slock.it initially will need to build their Ethereum computer. This means that any remaining money can be used to support their further endeavors once they’re ready to move on. Should Slock.it become a success, investors will see a return on their initial investment and will likely see interest paid out through dividends, maybe even using Digix gold-backed cryptocurrency. In the event Slock.it fails, investors can vote to liquidate the DAO and have funds sent back to the cryptocurrency address they initially used to invest.
Slock.it’s DAO codebase is completely FOSS (Free and open-source software), and other startups are already hard at work implementing it into their own dApps. Will DAOs eliminate legacy corporations completely? That remains to be seen, but the reasons why they should are solid, even if only to drastically reduce corruption. The potential for digital innovation is arguably the most exciting aspect though. Check back on Millennial Investor or subscribe to our newsletter to get the latest updates about Slock.it and find out when it will be possible to invest in their business.
A big thanks to Stephan Tual for his excellent writing on the Slock.it blog and for making it easier to understand the complexities of DAOs.