Blockchain Technology and Business

Applications

Dr. Jithesh A
Information Systems Area
IIM Raipur
Agenda
• Decentralized organizational structure
• Distributed Autonomous Organizations (DAO)
• Examples of DAOs
• How to start a DAO?
• How DAO gets funds?
• Types of DAOs
• Challenges facing DAOs
Traditional organizations
DAO
Traditional organizations
• Criticized for being too bureaucratic and insufficiently equitable and
inclusive
• Key stakeholders are often left without a meaningful voice in the
governance of these enterprises
Decentralized organizational structure
• Holacracy movement
• Brian Robertson in 2007.
• Based on the idea that organizations should be run as living systems. Following
principles:
• Self-organization: Employees are empowered to make decisions and take action without
needing permission from a manager.
• Circles: Employees are organized into circles, which are self-managing teams. Each circle has a
clear purpose and is responsible for a specific area of work.
• Roles: Employees are assigned roles, which define their responsibilities and authority. Roles
are not tied to individuals, so they can be rotated or reassigned as needed.
• Governance: Holacracy is governed by a set of rules called the Holacracy Constitution. The
Constitution defines the roles and responsibilities of different parts of the organization, and it
provides a framework for decision-making.
• The Holacracy movement is based on the belief that Holacracy is a more
effective way to organize and manage organizations (e.g., Zappos)
Decentralized organizational structure
• ConsenSys
• Joseph Lubin, co-founder of Ethereum
• The company's mission is to "build the infrastructure, tools, and applications for a
decentralized world.“
• E.g., MetaMask, Truffle
• Cues from the so-called Holacracy movement
• Authority is distributed not delegated.
• Rules are transparent to reduce office politics, and the enterprise is built to
respond quickly to changing needs.
• ConsenSys works really more like a blockchain platform itself than a
traditional corporation.
Decentralized organizational structure
• ConsenSys operates according to a plan.
• The plan was developed, voted on, and adopted by all the members
of ConsenSys.
• Structure as a hub rather than a hierarchy.
• Each of its projects is a difference spoke.
• Major contributors to each spoke hold equity.
• Participants are members not employees.
• Now, these members choose from two to five projects to work on at
any point in time, no top-down assignments.
Decentralized organizational structure
• The company runs on Ethereum really as much as possible.
• Funding, day-to-day tasks and projects, as well as software development and testing.
• Hiring, it uses reputation systems where members can rate one another as
collaborators.
• The ConsenSys ecosystem can form new spokes if they reach consensus on
the spoke strategy, architecture, capital performance measures, and
governance.
• They may launch a company to compete within an existing market or they
may try to create a new market.
• The decentralized structure leaves employees free to communicate, to be
creative, and to adapt.
• A radical new experiment in creating value.
Distributed Autonomous Organizations (DAO)
• DAO is an internet native, blockchain-governed, collectively-owned
organization working towards a shared mission
• Three distinguishing characteristics
• Use of blockchains, digital assets and related technologies
• Allocation and coordination functions
• Decentralized governance
Distributed Autonomous Organizations (DAO)
• Members
• Act as peers
• Contribute to capital
• Proposing and working on projects
• Making decisions as a group
• Top-down management is replaced by blockchain-based rules
encoded in smart contracts
• E.g., funding a new project only if a proposal is passed by the
members
DAO
DAO
• Benefits?
• The use of blockchains and digital assets reduces the need for trust in third
parties
• Provides a means of rewarding contributors.
• By decentralizing governance across several stakeholders and disclosing
operational and financial information, DAOs can reduce information and
power asymmetries.
• The first DAO: “The DAO” in 2016
DAO (Example of buying a land)
Example
• Friends with Benefits (FWB) is a community DAO for web3 creatives
• Friends With Benefits (fwb.help)
• A conceptual example is Plantoid (see http://plantoid.org/)
• Conceived and built by Harvard law scholar and artist Primavera De Filippi
• The plantoid has a mechanical Rasberry Pi-controlled body and an Ethereum smart
contract-controlled soul.
• It performs a show ( example, some flashing lights and a wiggle dance) in return for
receiving bitcoins sent to its own cryptowallet by humans
• The goal of the plantoid is also reproduction
• By making contracts with human artists (once it accumulates enough, triggering a smart
contract) to reproduce themselves
• The artwork then is self-owning, and hires (contracts and pays) an artist to reproduce
• Dtravel (https://www.dtravel.com/_
How to start a DAO?
• (1) Establish a mission
• (2) Build a community on Discord
• (3) Create a shared treasury using multi-signature wallet (e.g.,
https://safe.global/)
• (4) Construct a governance framework
• E.g., Snapshot (https://snapshot.org/)
• Snapshot is an off-chain voting platform that allows DAOs to participate in
decentralized governance easily
• (5) Distribute ownership
• E.g., https://www.coinvise.co/
How does a DAO raise funds?
• Governance token
• Gives holders voting rights over DAO activities
• Two ways to get governance token
• Buy in an open market using cryptocurrencies
• By contributing to the DAO
• Designing a vision document, logo etc.
• Creating a report for the DAO
• Programming
• Marketing
• Any time an proposal or money transfer happens, DAO approves through
voting (e.g., https://www.citydao.io/)
Types of DAO participants
• Founders
• Develop a unifying mission for a project and begin building
• Treasury multisig signers
• Oversee a DAO’s multisig wallet
• Multisig wallet: A wallet requiring separate keys to authorize a transaction
• Allocates resources in line with the DAO’s purpose
• Deployment multisig signers
• Carry out changes to smart contracts based on community votes
Types of DAO participants
• Delegates
• Appointed to representational councils to serve specialized functions
• Core contributors
• Entitled to receive token incentives for ongoing contributions to the DAO
• Token holders
• Broadest category of DAO participants.
• DAO tokens can provide governance functionality, reward for direct efforts
WEF’s Classification of DAOs
• Classified based on its objective (what it tries to achieve) and means
(how it achieves)
• 3 types of objectives:
• Generative: Seek to create something or perform an ongoing function
• Associative: Seek to enhance the functioning of a community or society
• Ad-hoc: Seek to achieve a specific goal and then disband
• 3 types of means
• Activity: Primary means is managing an activity
• Value transfer: Primary means is deploying capital
• Social: Primary means organizing people
• 3x3 matrix
WEF’s Classification of DAOs
Challenges facing DAOs
• Operational challenges:
• Recruiting
• Logistical difficulties in establishing contractual relationships,
• Opening bank accounts and engaging with external service providers
• The uncertainty of compensation mechanisms may make it difficult for DAOs
to retain high-quality talent
• Coordination challenges:
• Without clearly defined roles, many DAOs face coordination challenges.
Challenges facing DAOs
• Scaling challenges:
• While functional DAOs that power a network or application may not require extensive
coordination, community DAOs may encounter challenges when scaling.
• Governance challenge:
• E.g., voter apathy and concentration of power.
• It is worth noting that this risk is also present in traditional organizations.
• Social challenges:
• Digital divide
• Legal and regulatory challenge:
• A lack of legal and regulatory clarity.
• Even centralized organizations have benefited from a long history of trial and error (WEF
report).
• DAOs are an experiment in governance, and with time, it is possible that many of these
challenges will be addressed
Mitigation strategies to address the
challenges
• A progressive approach to decentralization
• A small group manages certain critical tasks of the organization and then transitions decisions to
community vote and smart contracts
• E.g., sub-DAOs
• Specializing the functions of delegates
• To improve the alignment between contributor skills and organizational needs
• Orca, for example, offers tooling for DAOs to develop smaller working groups that can take on
specific tasks as required
• Localization
• Empowering community members to engage local participants, especially during onboarding
• Time-limited goal-setting processes
• Such as season planning to streamline operations
• Identifying active contributors and rewarding
• Weighted voting: E.g., Quadratic voting
Role of Chief Information Officer (CIO)
• Major challenges in deciding whether a blockchain solution is
necessary or not
• How blockchain solutions can be implemented?
Challenges
• How to compete and collaborate at the same time (e.g., in an
industry consortium)
• The lack of technical interoperability
• Regulatory situations, including addressing various security and
privacy laws
• Hype
Blockchain hype
• Vendors are flooding the market with promises and solutions, mostly
focusing on efficiency gains
• Most solutions marketed as “blockchain” are missing key components —
particularly tokenization and decentralization.
• Five blockchain elements
• Distribution
• Encryption
• Immutability
• Tokenization
• Decentralization
• “Blockchain washing” creates confusion
• Need of a model that can enable CIOs to easily and accurately align the
needs of their firm with the appropriate blockchain solution or alternate
technology
The Gartner Blockchain Spectrum
• Four archetypes based on the elements they contain, some of which won’t fully
develop for years.
• Five blockchain elements
• Distribution
• Encryption
• Immutability
• Tokenization
• Decentralization
• Blockchain-enabling
• Blockchain-inspired (2012-2020s)
• Blockchain-complete (Early 2020s)
• Blockchain-enhanced (Mid 2020s and later)
• Each of these phases offers opportunities and risks
Blockchain-enabling
• Provide the foundation upon which future blockchain solutions can
be created.
• These elements can also be used as part of non-blockchain solutions,
for example, to improve the operational efficiency of distributed data
management systems.
• The building blocks include cryptography, distributed computing,
peer-to-peer networking, and messaging.
Blockchain-inspired
• Blockchain-inspired solutions use three of the five elements
• Distribution
• Encryption
• Immutability
• Lack tokenization and decentralization
• Often focus on efficiency or reengineering existing processes.
• E.g., Alibaba tracks and traces food products from around the world.
• Blockchain-inspired solutions will dominate enterprise implementation focus
through the early 2020s.
• These solutions are generally of limited scope and rely on maintaining established
processes and architecture such as a centralized authority
• Lack the ability to tokenize multiple forms of digital and non-digital assets and are
designed without a basis for decentralized operations and governance.
Blockchain-complete
• Beginning around 2023, enterprise-ready blockchain-complete solutions
will emerge.
• Will utilize all five blockchain elements and offer a path to completely new
business models that use dynamic smart contracts, tokenization and
decentralized operational structures.
• These solutions will deliver on the full value proposition of blockchain.
• Will feature tokenization enabled by smart contracts and decentralization,
two components blockchain-inspired solutions often lack
• These capabilities are the catalysts for the introduction of new business
models
Blockchain-enhanced
• Moving into 2025, blockchain will incorporate complementary technologies, such
as the Internet of Things (IoT), artificial intelligence (AI), and decentralized self-
sovereign identity (SSI).
• This evolution will enable people to own, control, and share their digital and non-
digital identities via decentralized SSI.
• Individuals will be able to decide how their identities will be shared, leading to a
situation when organizations, people, or things can use that data as needed for
interaction.
• All the data will be secured, for example, in a digital wallet, and be traceable and
trackable.
• Automatic negotiations
• E.g., A car negotiating its own insurance rates directly with the insurance company based on
data collected by the car’s sensors.
Distributed Applications (DApps) Architecture
Web2 architecture
• Web2 ("Social Web“): the second
generation of the internet where
users not only consume content but
also create and share it.
Web3
• "Decentralized Web"
• Next generation of the internet,
powered by blockchain technology.
• Goal: To create a version of the
internet that's decentralized,
transparent, and where users control
their own data.
• Applications (dApps) are run on
decentralized networks, reducing the
risk of control by a single entity.
• dApps (distributed applications) run
on Web3
dApp stack
• Collection of the different technologies and components that are
used to build a decentralized application (dApp)
• Typically includes the following layers:
• Data layer
• Stores the data that is used by the dApp
• Logic layer
• Contains the code that defines the dApp's business logic
• Presentation layer
• Responsible for displaying the dApp to users
Developing a dApp
• If dApps on Ethereum platform, then programming language called
Solidity is used
• In Cardano, Plutus is used
• In Solana, it is Rust
• https://console.atra.io/
What should CIOs do?
• Shift strategic investments to blockchain-complete solutions and
away from blockchain-inspired solutions that reinforce centralized
processes and hinder the enterprise from achieving the most business
value from blockchain
• CCR (Capabilities Complements Responsibilities) framework
• CAP theorm