The government has control over many aspects of an economy. However, it cannot influence decentralized autonomous organizations. Some of the factors that are used to categorize the organizations include the number of decisions to be made, incentives for the participants, and the level of decentralization.
The organizations are represented by rules which are encoded as computer programs and are only controlled by shareholders. One of the unique features of decentralized autonomous organizations is transparency. All the rules that govern the organizations’ and records of their transactions are stored in a blockchain.
Blockchain technology is used to develop secure digital ledgers for tracking financial transactions across the internet. Other security measures in decentralized autonomous organizations include trusted timestamps and dissemination of database and that speeds up financial transactions as there is no need to include third parties in a transaction.
In traditional organizational setups, there are employment contracts that outline the nature of the relationship between agents and organizations. The rights and obligations of such organizations are regulated by specific legal agreements and are enforced by the legal arms of the jurisdictions they are located in.
If one of the parties does not meet their obligations, the legal contracts outline which party can be sued in a court of law and reasons why they can be sued. On the other hand, decentralized autonomous organizations involve the interaction of a group of people in accordance with a self-enforcing protocol.
Unlike in traditional setups, members in a decentralized autonomous organization do not enter into any legal agreements. The members are controlled by various incentives and rules for specific networks. The protocol and smart contracts govern the behavior of all the members in a decentralized autonomous organization.
Traditional firms are characterized by many layers of management and bureaucratic coordination. The traditional organizations are not ideal for parties that have mistrust among themselves, live in different jurisdictions, and speak varying languages. All agreements are self-enforced through majority consensus from various network actors.
Some decentralized autonomous organizations are simple, while others complex. The complexity depends on factors such as the number of stakeholders and the number of processes and participants that will be regulated by a contract. Organizations with more-centralized rules are similar to the traditional setups.
Just like traditional organizations, decentralized organizations aim to generate high returns for their investors. In both forms, the organizations attract and allocate different types of capital, including talent, technology, and money to develop new solutions. Both types of organizations allocate the risk of failure, when processes do not work as expected.
There are uncertainties for all economic activities, and this is considered in both types of organizations. The organizations determine how rewards are distributed. They also define who will enjoy the benefits of successful outcomes.
All organizations determine how benefits are distributed among the different parties and define success. Stakeholders in both forms of organizations design the scaling mechanism, which includes acquiring more money, talents, and developing structuring to facilitate the scaling.