Issue link: https://maltatoday.uberflip.com/i/1164933
12.09.19 12 OPINION George Mangion I n the beginning there was man. Much later he created blockchain technol- ogy and with this creation he hopes to liberalise the commercial community from some of its bureaucracy and in the near future decentralise trade in a seam- less fashion. When blockchain technologies were developed, the masterminds behind the concept of a decentralised autonomous organization (DAO) company created the tools necessary to turn their ideas to a practical use. Simply put, blockchain technologies introduced the concept of a secure digital ledger, which could track all interactions of its members across the Internet and thus provide a safe and secure environment. As is the case in farming where one cannot avoid the damage made by pests and disease so equally because of hack- ers and corruption it was thought im- portant to invent a secure distributed database held by all users of the block- chain. e uses for DAO's with their unique infrastructure are remarkable in scope. Allowing for regulatory oversight one may conceptualise how in the next dec- ade blockchain data could replace many public records like birth certificates, marriage certificates, deeds, mortgages, titles, police records and missing per- sons. Healthcare clinics can function autonomously, and as Malta harkens in its quest to become a Blockchain hub it can attract many software development companies which can employ thou- sands of independent programmers. Back to DAO's theme - one may ask what is so autonomous about this or- ganisation. e answer is that by imple- menting unique tools it empowers the organization to run without managerial supervision. us, a DAO is a business or organization whose decisions are made electronically by a written com- puter code (smart contracts) or through the vote of its members. e novelty lies in an intricate system of hard coded rules that define which actions an or- ganization will take. Most commonly, one finds that DAOs are funded by members and this will usually provide members with tokens, proportional to their investment, rep- resenting voting and ownership rights. ese tokens are freely transferable and their price fluctuate over time, in a simi- lar fashion as happens in stock markets. e utility of these smart contracts is the ease how they can be programmed to carry out a variety of functions - such as releasing funds after a certain date or when a certain percentage of voters agree to fund a project. So far, DAOs are mainly found in the FinTech sector. e main focus here is on the digital currencies, which can benefit from a sophisticated and fast organizational structure traditionally facing a volatile and fast-moving market. One notes how DAOs were facilitated by the de- velopment of Ethereum, a public block- chain which provides a decentralized virtual machine to execute peer-to-peer contracts using its own cryptocurrency - namely Ether. e Ethereum network uses Ether as the currency for transaction fees on its blockchain for the purpose of compen- sating providers of the network to se- cure computing power used mainly to validate actions taken on the Ethereum blockchain. Ether can be compared as the essential energy source to power all Ethereum transactions. At this stage, readers may ask what is Ethereum. By definition, it is a distrib- uted network formed by thousands of nodes (computers running the Ethere- um software) around the world. To put it into perspective, whereas Bitcoin re- cords the creation and transfer of bit- coins in its global ledger, Ethereum, in addition to recording the creation and transfer of Ether, stores "smart con- tracts". e creator of Ethereum, Vitalik Buterin said "ere is a lot of interme- diaries that end up charging 20–30%, if the concept of decentralization takes off and does well, those fees are going to decline to almost zero". is Ethereum platform is a new and expanded version of the Bitcoin system in that it adds a layer of software on top of a blockchain. Like Bitcoin, Ethereum also comprises decentralized "mining" computers, but whereas the Bitcoin miners primarily authenticate transac- tions, the Ethereum miners authenti- cate and run executable code. e DAO was intended to allow cryptocurrency "investors" to directly fund and manage new enterprises – all to be run on the Ethereum blockchain. Because the DAO was backed by Ethereum, complex business logic could be programmed, and once set in action, the organisation would be virtu- ally unstoppable. e blockchain would ensure that all business transactions and organizational changes would be immutably recorded on a public ledger authenticated and controlled by a large, decentralized network of computers. Moreover, because the organisations spawned by e DAO were directly funded through digital token-holding "investors" each organization would be, in effect, directly managed by its inves- tors, as per the investment stake of the individual. Not all regulators and banks are in agreement with this new founded transparency but it is undeniable that a DAO is a business model of the future. e advantage of such technology is that it's difficult to change the smart contracts once it's deployed to the Ethereum blockchain. is is what ren- ders it tamper proof. Let us mention some examples of DAO projects start- ing with Digix global, e DAO compa- ny and the virtual currency Dash. Dash is a cryptocurrency unlike most others because it is neither a develop- ment platform nor it is like first crypto- currencies with their huge transaction fees, waiting times, and volatility. Dash is decentralised peer-to-peer electronic cash built on core of Litecoin which is decentralised in governance and founded via its own network by mining. is makes it autonomous and independent from any authority but its own users. Having discussed DAOs and Dash can we comment on resistance to change faced by these technologies in the world of business. Starting from the East we find that both India and China have experiment- ed and learned some lessons on how to deal with blockchain and the vagaries of virtual currencies. Back to Malta, it has been seeing a respectable number of investors wishing to set up a virtual currency base. Top of the heap is Binance, one of the largest cryptocurrency exchanges in the world, which plans to engage up to 200 people according to its CEO Zhao Changpeng. Another applicant is a high profile blockchain business based in Berlin. e CEO of Neufund Zoe Ad- amovicz, said "we want to kick-start the creation of crypto-friendly laws with Malta's DLT framework initiative already serving as a great foundation. We hope to influence a positive change in the banking industry with other up- coming projects". In Malta, this sector has started be- ing regulated and last year we saw the promulgation of three acts. It goes without saying that DLT scene has be- come a phenomenon that has reached a mainstream audience. Will the laudable DAO's concept follow soon? Demystifying decentralised autonomous organisations George Mangion is a senior partner of an audit and consultancy firm, and has over 25 years experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF being instrumental in establishing many companies in Malta and ensured PKF become one of the foremost professional financial service providers on the Island