Decentralized governance organizations are not new, but in their current forms they have all relied on some level of trust in human agents and are organized by means of the usual system of implicit and explicit contracts. Proponents of blockchain technology and smart contracting see the mathematical certainty and irrevocable nature of a smart contract as a desirable design feature. It does not require people to act in good faith or legal systems and authorities to resolve disputes.
DAO’s and related trust less organizations differ in a number of ways:
- There are no trusted human executives since the organization is governed and operated by smart contracts.
- The smart contracts which form their governance are written and executed as computer code.
- Monitoring and enforcement of smart contracts are likewise by computer algorithms.
- There are weak or non-existent mechanisms for dispute resolution, since the code is law and all participants have agreed in advance to abide by the code of the smart contract.
The core of blockchain philosophy is as a decentralized, immutable, trust less system with a glimpse of a potentially new type of autonomous organization built in and operated by blockchain technology.
Blockchain technology provides a secure, peer-to-peer, distributed, trust less ledger of transactions, which stands in contrast to the common centralized ledgers that require a trusted central authority to clear transactions and maintain the ledger.
The transparency of the blockchain means alteration to the code is obvious since changes require community consensus.
A decentralized organizational structure spreads decision-making rights to a diverse range of people and empowers the collective of individuals to make decisions.
A key issue that arises by removing governance from people and placing it in the hands of a smart contract is the inability to hold individuals accountable when things go wrong Smart contracts on a blockchain earn the distinction of being trust less, since the parties to a smart contract need not trust each other or a third party mediator to execute the contract, only the code of the smart contract and the blockchain's ability to enforce its terms.
Smart contracts may represent a new class of contracts where parties agree to code their agreement into the blockchain, instead of specifying their agreement in writing. Using smart contracts when both parties agree to place their trust in the code of a smart contract instead of trusting each other, or a third party mediator, to act in good faith through some type of understanding.
Since smart contacts follow a set of predetermined rules and logic and make assumptions about the business operating environment, it is difficult to design them explicitly for all possible contingencies.
Trust, or the lack thereof, is therefore assumed to be the underlying issue dictating how organizations organize themselves in order for actors to be made trustworthy.
What if trust was not an issue, as it is supposed to be in a trust less organization? Is the absence of any “real” accountability possible?
What will such an organization look like?