The WelderDestiny Compass

DAO Example - Issue #057

Wednesday, February 28, 2018 / Perth Australia / By Niekie Jooste

In this edition of "The WelderDestiny Compass":

  • Decentralized Autonomous Organization Example
  • Problems With Central Platform
  • How A DAO Solves The Problems
  • Challenges With DAO's

Decentralized Autonomous Organization Example

We have spoken much about DAO's, but possibly the best way to test some of the issues, is to look at an example of a DAO, and how it can solve problems that we typically have with current centralized platforms.

I have decided to look at a home sharing platform that aims to compete with AirBnB. I do not personally have an issue with AirBnB, but it has problems that are inherent in any central platform, especially so called "sharing economy" applications.

In this regard, the issues are not much different to applications like UBER. While there is certainly a DAO that fits this model, they are still in the platform building phase, so their final product could end up being a lot different from what we discuss here. The intention is not to promote this platform, it is rather to show a typical DAO that is busy being built, and that you could potentially use in the future.

If you are interested, the DAO is called "BEE". You can find more information by clicking here...

So, think of a platform where hosts can list their properties / rooms for rent by guests on a nightly basis. Guests can then decide which accommodation they would like to stay in, and make the booking. Payment then happens through the platform, so there is no cash changing hands, which eliminates the security issues associated with cash. If you have used the AirBnB platform to book some accommodation, then you will recognise that our DAO has pretty much the same functionality as AirBnB.


Now let's get stuck into this week’s topics...

Problems With Central Platform

The typical issues that are part of a home sharing application are as follows:

  • Hosts have an upper hand when compared to guests: Let us say that you have booked a room, and paid your money. At that point you are pretty much at the mercy of the host. If there is a "host" on the platform that is actually a scammer, then they will end up getting quite a number of payments before it comes to light that they are not genuine. This leaves you out of pocket, and with a difficult path to getting your money back. Also, if the host decided to cancel your booking at the last minute, you may get your money back, but you may also end up without alternative accommodation. That will certainly put a damper on your holiday.
  • Central platform dictates policy: The typical progression with these platforms is that initially they offer very good rates to their hosts. This ensures that many people sign up, getting the platform established. Once the platform has grown to a point where competition is difficult, then the platform will start to take a bigger cut of the money flowing from the guest to the host, because the money automatically goes through the platform's financial system. Eventually the hosts end up with very narrow margins, while the platform builds big profits. Switching to another platform is difficult once a platform has become dominant.
  • Single point of failure for platform: If for some or other reason the platform fails, then everything falls apart. This can be due to technical problems with their servers or application, or it can be due to legal issues where some government department has decided to shut them down, or it can be due to the company going bankrupt.
  • Single point of failure for security: These platforms keep the personal information of all their hosts and guests. This includes banking and credit card details. In the case of a hack, all this information is at risk. A single hacker can potentially get access to all the information on their servers from a single attack.
  • The central platform gets to leverage all the information it collects: A platform like this collects huge amounts of data about both hosts and guests. They can then leverage this data by selling it to third parties, either for marketing purposes, or for market research purposes. In other words, the central platform gets to collect the "economic rent" associated with this eco system. You as the user of the platform do not get to share in any of these benefits.

How A DAO Solves The Problems

As we have discussed before, the main tool that the DAO uses to ensure that people are treated fairly, and to keep "bad actors" from disrupting the system is game theory. In short, if somebody does something untoward, it should leave them worse off.

The problems listed above can be solved as follows:

  • Hosts and guests are given an even playing field: When a booking is confirmed, not only does the guest pay a sum of "tokens", but the host also pays a sum of tokens. The tokens is the currency associated with that particular blockchain. The guest pays not only the amount for the accommodation, but also an additional "deposit" amount. These tokens are kept as part of a "smart contract" on the system, so neither the guest or the host has access to them. If one of the parties cancel the booking without an OK from the other party, then the party cancelling the booking looses a portion of their payment to the other party. The exact amount can be decided on a sliding scale, depending on how long before the accommodation date the cancellation is made. The payment from the guest to the host goes through when the stay period is completed, and both parties show that they are happy. The host also receives their "deposit" back, while the guest also receives their deposit back in full.
  • Policy is decided through a competitive environment and consensus: The nature of a distributed ledger platform ensures that the "common data" that is available for sharing between parties is freely available to anybody. Therefore, if the "company" that developed the software that allows the hosts and guests to interact, treats the parties unfairly, it would be a simple matter for another company to offer their own software for doing the same transactions. It will be like you being able to decide if you want to use the Internet Explorer web browser, or the Google Chrome web browser. You can get to the same websites, but each one has different features.
  • The community owns the blockchain: While a single company may have developed the software for accessing the particular blockchain, and perform the necessary actions on the blockchain, the blockchain itself belongs to nobody. It belongs to the community that uses it. Any party / company / organization that is part of the community can leave the community without actually destroying it. Any vacuum left by a service provider will be filled by another service provider, as long as the community is vibrant enough to make it worth their while. Also, technical problems with any single server will not impact access to the blockchain. If many of the "miners" stop operations simultaneously, then the network could slow down, but it would be highly unlikely that the entire blockchain goes off-line simultaneously.
  • Distributed security makes hacking very inefficient: Each user of the system will have "public" information and "private" information. The public information is visible to anybody. The private information is protected by cryptography, and each user keeps their own passwords. A single successful "hack" can only compromise a single user's private information. In short, if somebody manages to hack your private information, it was because you did something wrong, not because somebody else did something wrong.
  • All users can share in the added benefits associated with their own information: Because you control your own data, you can choose to include it in marketing research, or not. If you do choose to allow your data to be used, then you could stand to get a payment associated with that.

Challenges With DAO's

Obviously DAO's will have their own challenges, and their own ways of dealing with issues. I am sure that you will be wondering what happens when there is a dispute between hosts and guests. Eventually that will certainly happen.

Given that the funds "captured" in the smart contract can only be released when both parties show that they are happy with the transaction, what happens when one or both of the parties are not happy with what has transpired? Will the tokens forever be stuck in the smart contract?

Well, there will need to be a dispute resolution process. The people that are involved with the dispute resolution process will be registered as such on the system. Once a dispute has been "registered", by either of the parties involved in the transaction, they will get in contact with the different parties and make a ruling. Their time and effort will be rewarded by getting a "cut" of the funds that are at dispute.

If it is clear that the host is at fault, then the full payment for resolution will come out of their deposit and the guest will get their funds back. If it is clear that the guest is at fault, then they will not get their money back. A portion of their "deposit" will go to the person doing the resolution.

It may not always be black and white, then there may be some kind of pro-rata payment decided between the parties.

Another issue is that there needs to be a good reputation management system. Hosts will be rated by their guests, and guests will be rated by their hosts. Because all the transactions are captured on the blockchain, and is immutable, this rating system cannot be "fiddled" by somebody on the platform.

Clearly we are still a long way away from a properly working platform for home sharing, and there will certainly be a lot of trial and error before a user friendly platform is up and running. I do however hope that this description gives you some "feel" for how such DAO's will work.

There are many potential DAO's that could serve the welding / engineering industry. We will look at some of those in the near future.

Yours in welding

Niekie Jooste

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Your Ideas on DAO's

Can you see problems with the way that DAO's have been described here? What DAO would you like to see? Please share your stories, opinions and insights regarding today's topic.