Can DAO possibly offer a remedy to corruption?

Corruption is a global problem and it permeates all kinds of institutions, from corporations, governments, even institutions that work to support noble causes such as non-governmental organizations (NGOs).

Corruption in the public sector is so prevalent that the Berlin-based organization Transparency International (TI) is publishing an annual report of corruption perception index (CPI), which ranks 180 countries based on their citizens’ perception of just how corrupt their governments are. 

In TI’s 2020 CPI index, New Zealand and Denmark came on top of the list as countries with the lowest corruption perception, while Somalia and Sudan were named on the bottom of the list (both ranked 179). Indonesia, meanwhile, was ranked 102, along with Gambia. 

Although some countries tend to be more corrupt than others, corruption  can even happen in countries which have implemented excellent transparency and accountability mechanisms.

The fact that currently our institutions and organizations are managed under centralized systems has made them more vulnerable to corruption. 

As we all know, centralized systems rely on a single central power to have authority over all other members of the organization. Finally, taking into account that power tends to be corrupt, it is not all that unusual for these powerful central authorities to not want to be transparent about what is going on in the organization to other members who are less powerful than them.

For instance, it is not all that unusual for president directors of companies to rig a procurement tender process in favor of their business associates who, in actuality, are not capable of handling the job. 

Or, the treasury of a government body can just steal money from the national budget and get away with it because she and she alone holds access to the body’s financial results and will not allow other civil servants, especially the low-ranking one, to access the document. This is why lots of corrupt practices were not detected until an external auditor smelled something fishy with the organization’s financial management.

Considering the limitations of centralized systems in terms of managing transparency and demanding accountability of the powers that be, decentralized solutions can possibly be a great solution to mitigate corruption, especially in sectors which impact the livelihoods of so many individuals.

Thankfully, blockchain technology has given rise to something called the decentralized autonomous organizations or DAOs. 

The cool thing about DAOs? They run on a peer-to-peer network which does not rely on a single central authority thus giving all organization members equal authority. They remove all the middlemen who usually collect illegal levies from transactions by automating all its transactions and activities. They can also ensure more transparency and accountability.

If you are someone who is truly passionate about corruption eradication (which I suppose is why you are reading this article in the first place), I am sure by now you’ve already been deeply curious to find out a more in-depth explanation about DAOs. So, read on!

What are DAOs?

Simply put, the DAO is an internet-native business without any central source of authority, thus requiring all organization members to proactively and collectively make decisions such as how to run the organization. The organization allows for a more participatory management style whereby the organization will make sure that it has included everyone’s voice in the decision making and strategy deliberation processes. 

Another cool thing is: the DAO is automated using smart contracts and tokens based on algorithms and codes to validate transactions and activities going on there. Therefore, it effectively removes all middlemen who often make transactions more sluggish and inefficient by imposing red tapes or collecting illegal levies. Through automation, the DAOs also minimize human errors in these transactions and activities.

DAO, transparency and corruption

A core feature of the DAO which can potentially mitigate corruption is its transparency. The DAO runs on the peer-to-peer network whereby all the documents, data and information stored there is readily available to be accessed by all the nodes (namely, computers run by the network participants) in the network.

This way, all information and data regarding the company or the government agency’s operations will be out in the open for everyone involved to see. Because of this, we will no longer have to hear stories about that finance director who steals money out of the company’s coffers or that minister who embezzles money from a state project, safely protected by the secrecy of their centralized operations, so to speak.

A caveat: coding matters

Of course, despite the promises it carries, the DAOs are not without its limitations. As in everything else tech, coding plays a vital role in ensuring that it will give the public all the benefits that it promises in terms of transparency and accountability. 

Finally, coding mistakes and loopholes can result in fatal attacks, such as the DAO attack which happened in 2018. During the attack, the hacker managed to suck up about 3.6 million ether, which was equal to about US$70 million at the time of the attack.

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