Australian investors and organisations are among hundreds of backers of a new virtual organisation that only exists online, is run entirely by computer code, but which promises to change the nature of corporations worldwide.
The DAO, or Decentralised Autonomous Organisation, represents the largest non-political crowdfunding project to ever hit the internet, closing a $US132 million ($184 million) fundraising round over the weekend, to create a corporation with no management, no board and essentially no legal rights in any jurisdiction.
The Australian Financial Review has tracked down a number of Australians who have invested including Duncan Campbell, a 26-year-old early cryptocurrency adopter, Bitcoin company Bit Trade and smaller research organisations hoping to build on the technology for their own operations.
"If Bitcoin is a decentralised currency, and the blockchain is a decentralised transaction network, the DAO is like a decentralised corporation," Mr Campbell says.
"It's an entirely new system of corporate governance and looks like the next step in the evolution of crypto-driven business. It's where the smart crypto-money is going, that's for sure."
The DAO is the latest development in micro-economic theory; the study of the behaviour of how individuals and firms make decisions regarding the allocation of limited resources. Russian-Canadian co-creator, Vitalik Buterin, posed the question:
"... what if, with the power of modern information technology, we can encode the mission statement into code; that is, create an inviolable contract that generates revenue, pays people to perform some function, and finds hardware for itself to run on, all without any need for top-down human direction?"
Raises conundrums
It is a concept, which raises numerous potential legal and corporate governance conundrums, but has quickly captured the imagination around the world.
The DAO is built on Ethereum, which is best described as a cousin of the blockchain.
Whereas the blockchain is a decentralised network of computers that transfers money (or bitcoin), Ethereum allows software programs to run.
These programs are called smart contracts, which can control accounts, money and execute operations like regular computer programs, but autonomously.
You can program Ethereum to perform actions such as releasing funds at a certain time, and it can interact with data from the real world. It also uses a cryptocurrency, called ether.
A global consortium of 42 banks, called R3 CEV, has developed something similar; in April it revealed an application that uses distributed ledgers to exchange contracts rather than assets.
"When people hear blockchain they think of a combination of science fiction, magic and interesting outcomes," says Nick Abrahams, technology partner at law firm Norton Rose Fulbright. "This latest DAO development certainly falls into that category."
How it works
Built on the Ethereum network, a DAO (or online co-operative) is a decentralised group of participants who each receive voting rights on how it should operate. Each participant buys tokens representing their say.
A group can program what the entity should do at what time and is designed to be a democratically driven vehicle.
The organisation now in control of $US150 million worth of ether hopes to deploy its capital to Ethereum-based projects and in turn generate income. However, like many technology start-ups, generating revenue seems less front of mind than creating or funding projects with a compelling theorum.
"The notion of a self-executing contract is very interesting," says Mr Abrahams, who advises clients on how to deploy blockchain technology within their organisations.
"But people are getting carried away that it's a replacement for a company, when it can't form a contractual relationship. A company is not a human but has human-like capabilities under the law, that protects people involved. A DAO has no rights and that leaves members without protection."
A range of new organisations
While the DAO is just one project, built by the developers of Ethereum, many more DAOs have been theorised using the decentralised notion of consensus, meaning participants all have voting rights and the power to move the company in one direction or another.
Whereas Bitcoin spawned new ways of rethinking the monetary system, DAO has developers rethinking the traditional organisation structure.
Hugo O'Connor, head of innovation at Bit Trade Australia, has developed a decentralised organisation called UnionD, using software that aims to efficiently distribute the skills of a particular sector of a workforce.
"We are trying to systematise the organising of groups of people sharing common skills or interests," says Mr O'Connor. "Guilds, co-operatives and friendly societies share many of these ideas which until now have not been formalised in software."
At the recent Consensus cryptocurrency conference in New York, Mr O'Connor and his team received an honourable mention for UnionD.
"A decentralised autonomous organisation is about redistributing power to the collective pool of people, rather than a central point," says Mr O'Connor.
Mr O'Connor said he has personally participated in the DAO's recent blockbuster fund-raising, along with several of his colleagues.
While the DAO has finished its first round of funding, breaking all previous crowdfunding records, Duncan Campbell doesn't expect to see a return on his investment for at least another 12 months.
"This is about funding projects that other scientists, mathematicians and cryptographers are working on," he says.
"I've got in early because in the world of cryptocurrency, early adopters tend to be rewarded the most. People who were mining Bitcoin on their laptops at the beginning have such an advantage over people wanting to buy in later."
While there's still a lot unclear about the DAO or how DAOs in general will operate, the idea itself has captured much attention.
Questions still to be answered include what happens if DAO tokens are slowly accumulated to one source, rather than remaining decentralised nature, and whether we could we see an ASX-listed DAO in the future.
http://www.afr.com/technology/the-dao-australians-buy-into-the-virtual-company-of-the-future-20160518-goxnuz
