A DAO is an approach built by rules encoded like a computer program, for a
community led by no central authority, rather controlled by it's organization's
members. It is a system which is completely transparent and autonomous, running
on a blockchain. The blockchain is a public record framework that exists just on
the web. It is a cryptography framework to guarantee that everything written
with it is protected and verified.
DAOs, or decentralized autonomous organizations, are entities that operate on a
blockchain network, typically on a decentralized blockchain such as Ethereum.
Blockchain technology provides the foundation for the creation and operation of
DAOs. And blockchain law is a rapidly developing field of law that deals with
the legal and regulatory issues surrounding blockchain technology,
cryptocurrencies, and related activities. Blockchain technology is a distributed
ledger system that allows for the secure and transparent storage and transfer of
data, including financial transactions.
A DAO is essentially a computer program that runs on a blockchain and is
designed to carry out specific functions according to a set of predefined rules.
Members of the DAO are able to vote on proposals, and the results of these votes
are recorded on the blockchain, providing a transparent and tamper-proof record
of the decision-making process.
The use of a blockchain network ensures that DAOs are decentralized, meaning
that there is no central authority or individual controlling the organization.
This allows for a more democratic and transparent decision-making process, as
well as greater security and resistance to censorship or hacking attempts.
One example of a DAO is "The DAO", which was created in 2016 on the Ethereum
blockchain. The DAO was a decentralized investment fund that allowed members to
pool their funds together to invest in various projects.
The DAO operated according to a set of rules encoded in smart contracts on the
Ethereum blockchain. Members of The DAO were able to propose new investment
opportunities, which were voted on by the community using the organization's
In its short existence, The DAO raised over $150 million from its members.
However, it suffered a major security breach that led to the loss of a
significant amount of funds. This event sparked a major debate in the Ethereum
community and ultimately led to the fork of Ethereum into Ethereum and Ethereum
Some of the key features of DAOs include:
- Decentralization: DAOs are decentralized entities, meaning that there is
no central authority or individual controlling the organization. This allows
for a more democratic and transparent decision-making process.
- Autonomous: DAOs are designed to be self-governing and operate according
to a set of predefined rules encoded in smart contracts on the blockchain.
- Transparency: All transactions and decision-making processes within a
DAO are recorded on the blockchain, providing a transparent and tamper-proof
record of the organization's activities.
- Tokenization: DAOs often issue tokens that represent ownership or
membership within the organization. These tokens can be used to vote on
proposals or participate in other governance activities within the DAO.
- Voting: Members of a DAO are able to vote on proposals, and the results
of these votes are recorded on the blockchain. This allows for a more
democratic decision-making process and ensures that all members have a voice
in the organization's activities.
- Community-driven: DAOs are often community-driven, with members working
together to achieve common goals and objectives.
Advantages of using blockchain technology in the creation and operation of
- Decentralization: Blockchain technology provides a decentralized platform for DAOs to operate on, meaning there is no central authority or single point of failure. This allows for a more democratic decision-making process and reduces the risk of censorship or hacking attempts.
- Transparency: The use of blockchain technology in DAOs provides a transparent and tamper-proof record of all transactions and decision-making processes. This ensures that all members can easily audit the organization's activities and hold it accountable.
- Security: Blockchain technology provides a secure platform for DAOs to operate on. The use of cryptographic algorithms and consensus mechanisms ensures that all transactions are verified and recorded on the blockchain in a secure and tamper-proof manner.
- Trust: The decentralized and transparent nature of blockchain technology provides a high level of trust in DAOs, as all members can easily verify the organization's activities and decision-making processes.
- Efficiency: DAOs can operate more efficiently on a blockchain network, as all transactions are recorded on a shared ledger and do not require intermediaries or third-party verification.
Legal Implications to the Blockchain-based Decentralized Autonomous Organizations (DAOs)
As the DAOs become more prevalent, there are several legal implications that need to be addressed. Here are some key topics related to the legal implications of blockchain-based DAOs:
- Legal status: DAOs are not recognized as legal entities in most jurisdictions, and legal frameworks need to be developed to provide them with legal recognition and establish their rights and obligations.
- Governance: The decentralized decision-making process of DAOs raises questions about accountability and liability. Legal frameworks need to be developed to regulate the governance structure of DAOs and establish the liability of members in the event of misconduct.
- Regulatory compliance: DAOs may be subject to various regulatory requirements, such as securities laws, anti-money laundering regulations, and data protection laws. Legal frameworks need to be developed to ensure that DAOs comply with these requirements.
- Intellectual property: DAOs may own intellectual property, such as patents, trademarks, and copyrights. Legal frameworks need to be developed to protect the intellectual property rights of DAOs and establish their ownership.
- Taxation: DAOs may be subject to taxation, but the decentralized nature of these organizations makes it difficult to determine their tax liabilities. Legal frameworks need to be developed to address the taxation of DAOs and their members.
Bitcoin & DAOs
Bitcoin and DAOs are both built on blockchain technology, but they serve
different purposes and have different structures. Bitcoin is a decentralized
digital currency that operates on a peer-to-peer network. It uses cryptographic
algorithms and consensus mechanisms to verify and record transactions on a
public ledger, which is maintained by a network of nodes. Bitcoin is not a DAO
because it is not designed to be self-governing or autonomous. Instead, it is
simply a digital currency that allows for peer-to-peer transactions without the
need for intermediaries.
On the other hand, DAOs are designed to be self-governing and operate according
to a set of predefined rules encoded in smart contracts on a blockchain network.
DAOs can be used for a variety of purposes, such as investment funds,
decentralized organizations, and governance structures.
While Bitcoin and DAOs have different purposes, they both rely on blockchain
technology to operate in a decentralized and transparent manner. The use of
blockchain technology ensures that all transactions are verified and recorded on
a public ledger, providing a secure and tamper-proof record of all activities.
Indian Case Law on DAOs
In March 2020, the Supreme Court of India overturned a ban on banks providing
services to cryptocurrency exchanges and businesses, which had been imposed by
the Reserve Bank of India in 2018. This decision provided some clarity and
regulatory certainty for the cryptocurrency industry in India.
In addition, the Securities and Exchange Board of India (SEBI) has issued
warnings and advisories about investing in cryptocurrency and initial coin
offerings (ICOs), which are often used by DAOs to raise funds. SEBI has stated
that ICOs may fall under the definition of securities and be subject to
regulation under Indian securities laws.
It is likely that as the use of DAOs and blockchain technology continues to
evolve in India, there will be further developments in the regulatory landscape
and potential case laws relating to their use.
Therefore, the legal implications of blockchain-based DAOs are complex and
multifaceted, and require a deep understanding of both blockchain technology and
the legal landscape. As these organizations continue to grow in popularity and
complexity, it is likely that we will see further developments in this area of
law. Hence, the use of blockchain technology is essential to the creation and
operation of DAOs, providing a secure and decentralized platform for the
organization to function on. The use of blockchain technology provides several
advantages for DAOs, including decentralization, transparency, security, trust,