True Meaning of DAOs – Bitcoin as Business

Bitcoin is not just a blockchain but a DAO that evolves along with the users needs in an ever-changing world. Bitcoin is governed by a headless management consisting of miners that expend large amounts of computing power to keep the network alive and well. Bitcoin would never have survived past its fragile infancy if it wasnt for a strong community of devoted developers that worked tirelessly on a volunteer basis to make the project succeed. In late 2010, the scandal-stricken whistleblower website Wikileaks was considering using Bitcoin as means of funding after the US government had forced companies like Visa, Mastercard, and Paypal to blockade the organization.

Legal background, interested in business, and tech. http://www.futuristiclawyer.com

I have seen some articles lately, typically posted by profiles from shady investment companies who make the ridiculous claim that Bitcoin is too old-fashioned, volatile, environmentally unfriendly, and just plain boring, to keep up with upcoming metaversea new way of life in the digital realm.

The metaverse-will-take-over-bitcoin theory is easy to dismiss. First of all, at this point in time, the metaverse is a pure fantasy constructed and promoted by Big Tech. More than anything else, I cant help but see the metaverse as a distraction technique applied by Meta to divert the consumers attention away from bigger problems with their platforms like privacy issues and pronounced mental health issues among their users.

However, the online space is indeed evolving, and new developments including Web 3.0 applications and DAOs are certainly gaining ground. A question worth posing is whether Bitcoin with its limited functionality can continue to stay relevant while dApps, NFTs, Defi, and DAOs are increasingly developed and used on more advanced smart contract platforms like Ethereum and Solana.

Based on the research I have done for this post; the answer should unanimously be yes. Those who claim that Bitcoin is the most outdated and useless blockchain have missed an important point. Bitcoin is not just a blockchain but a DAO that evolves along with the users needs in an ever-changing world.

The first and most successful example of a DAO is Bitcoin. As critics would point out, Bitcoin may be a bit primitive for a DAO, since it does not do much, but merely exists as a store of value or a medium of exchange, depending on how you use it. However, Bitcoin is operating by pre-encoded rules independent of any single individual or central authority. By definition, Bitcoin is thereby decentralized, and at least semi-autonomous because human users are still needed to update the software and implement proposals. But that is not different from how many other DAOs operate today.

In a traditional joint-stock company the interplay between four main roles helps the company to realize its value: shareholders (owners), management, employees, and users.[1] In the Bitcoin network, we dont see the same strict division of roles or internal hierarchy. Bitcoin is, like other DAOs, owned, managed, employed, and used by the community as a whole.

If we view Bitcoin through the lenses of traditional corporate structure, the owners would be the investors since they are the primary group to command price movements. [2] At the crossroads, the network develops in the direction where most value can be generated for all stakeholders. That direction is determined by the investors through supply and demand.

The Bitcoin network is governed by a headless management consisting of miners that expend large amounts of computing power to keep the network alive and well. They are responsible for the daily operation of Bitcoin along with nodes that broadcast and validate transactions on the network. The developers are also vitally important community members, and like miners and nodes, they typically wear all the four hats of the traditional roles in a joint-stock company.

Bitcoin would never have survived past its fragile infancy if it wasnt for a strong community of devoted developers that worked tirelessly on a volunteer basis to make the project succeed. If bugs were somehow discovered and exploited early on, or if the network was overpowered by malicious nodes in its early make-it-or-break-it stage, Bitcoin would quickly have faded into oblivion as just another fad.

Another major concern that was apparent in Bitcoins early years was too much attention from the press which could lead to unwanted government interest. In late 2010, the scandal-stricken whistleblower website Wikileaks was considering using Bitcoin as means of funding after the US government had forced companies like Visa, Mastercard, and Paypal to blockade the organization.[3]

Exactly one week before Satoshi Nakamotos permanent disappearance, he replied to a forum member on bitcointalk.org who encouraged Wikileaks to bring it on:[4]

Some days later, Satoshis posted his famous penultimate message:[5]

The fact that Satoshi Nakamoto upheld his anonymity and left the project without a trace cements Bitcoins status as a community-driven organization without a CEO, board of directors, executives, or identifiable founder. The community as a whole is responsible for the direction that Bitcoin takes.

As NY Times wrote in an article from January 2016 before DAOs became a thing:[6]

Bitcoin resembles a participatory democracy as every participant in the network has the ability to vote in a narrow sense of the word. Since the software is open-source, anyone can propose changes, and run any version of the software that they see fit. Technically, proposals and feedback on proposals are managed, discussed, and implemented via software-based BIPs (Bitcoin Improvement Proposals).[7]

Bitcoins Taproot upgrade which was implemented in November 2021, exemplifies how nodes, developers, and miners can successfully work together and agree on protocol changes. Bitcoins incentive structure ensures that the community acts in the networks best interest at all times, since contributing to the network is more profitable than trying to damage it.

Now that we have concluded that Bitcoin is a DAO, lets take a closer look at Bitcoins role in the Web 3.0 space.

People get involved in the Web 3.0 space for various reasons (a side remark: I believe that the Web 3.0 space is probably a better term than crypto space or blockchain space since it has a broader meaning than the former and is more relatable, less technical-sounding than the latter.)

The vast majority of developers and users join the Web 3.0 space to seek new opportunities and have fun. One could argue that few regular users are turned on by studying Bitcoins source code, or like me by reading and writing lengthy articles about Bitcoins potential. So, lets rephrase and ask the same question from the introduction: if Web 3.0 is fun and exciting, how can Bitcoin as a relatively old and slow technology continue to stay relevant?

What binds Web 3.0 users together are that they typically subscribe to the importance of Bitcoins philosophy. Just as the internet has revolutionized the world by digitizing traditional businesses, blockchain technology which was born with Bitcoin has the potential to revolutionize the internet by decentralizing it.

Analogue Business Digital Business Decentralized Business.

I note that technically speaking decentralization is a misnomer since central entities will necessarily still be a big part of the decentralized web. In alignment with the first academic definition of Web 3.0, a more befitting adjective to describe Web 3.0 would be verifiable because users can attest to the correctness of code execution or the authenticity of data feeds.[8] The development of Web 3.0 can eventually turn the internet into a truly public good, instead of a private good dominated by a short list of monopolistic, profit-seeking intermediary businesses.

What some casual altcoiners have still not caught on to is that Bitcoin will most likely be a key institution in the Web 3.0 space. Not just as a grandfather of new innovation in blockchain. In the future, Bitcoins infrastructure could provide the security for a much larger ecosystem of decentralized applications (dapps) and DAOs.

The classical blockchain trilemma[9] concerns the inevitable tradeoff between decentralization, security, and scalability. A traditional blockchain can only have two of the three properties. For example, Bitcoin is highly decentralized with no trusted intermediary or central point of control, highly secure as transactions are validated and broadcasted to all nodes in the network, but Bitcoin is also unable to scale due to the rigorous, slow verification process.

Layer 2 solutions such as the Lightning Network are built on top of Bitcoin to scale the networkpotentially into a worldwide payment system like VISAby processing transactions off the main blockchain. Layer 2 uses the base protocol (Layer 1) as a secure settlement layer to validate bundles of smaller transactions at once. Layer 3 will be the application layer that uses Layer 2 to provide interfaces and software that millions of users can access. [10]Besides, Layer 3 is prospected to introduce cross-chain functionality so different blockchains can communicate and interact with each other.[11]

In other words, Layer 2 and Layer 3 on Bitcoin and other well-established blockchains could very possibly be where Web 3.0 happens in the future. The multi-layered approach resembles how the internet is built, not as one, but as multiple protocols designed on top of each other, each leveraging the one below. [12]

Trust Machine is one example of a company that has raised $150M in funding to expand Bitcoin to a Web 3.0 platform by utilizing this layered approach. CEO and co-founder, Muneeb Ali, previously co-founded Stacks which Trust Machines will be built upon. Stacks is a programming layer on Bitcoin that enables DeFi, NFTs, apps, and smart contracts while relying on Bitcoins consensus mechanism for security. Read more about it here.

Impervious is a Layer 3 solution built on the Lightning Network. Like Trust Machines and Stacks it works towards bringing Web 3.0 functionality to Bitcoin. Impervious has developed a web browser that was announced on April 7 2022 at the annual Bitcoin conference in Miami.[13]

The founder Chase Perkins neatly formulates what the purpose of the Impervious Browser will be [14]:

Impervious is also a programmatic layer that developers can write programs on with the security of Bitcoin, and the quickness of the Lightning Network for fast data transmissions. Read more about Impervious here.

Perhaps in the future, the unrivaled security of Bitcoins base protocol could serve as a breeding ground for the new internet of valuesimilar to how physical infrastructure like coax and fiber cables forms the backbone of the internet. [15]

Please join me in my next post, where we will learn more about practical use cases for DAOs.

This article was first published here.

[1] See Is the Bitcoin community a DAO? thread on bitcointalk.org: https://bitcointalk.org/index.php?topic=5349365.0 (29042022).

[2] Daniel Krawisz (Feb 2015) -> Who Controls Bitcoin? -> https://nakamotoinstitute.org/mempool/who-controls-bitcoin/ (28042022).

[3] Bitcoin History Part 19: Wikileaks and the Hornets Nest (Nov 2019) https://thebitcoinnews.com/bitcoin-history-part-19-wikileaks-and-the-hornets-nest/ (29042022).

[4] Reply to thread on Bitcointalk Wikileaks contact info? -> https://bitcointalk.org/index.php?topic=1735.140

[5] Reply to thread on Bitcointalk PC World Article on Bitcoin -> https://bitcointalk.org/index.php?topic=2216.msg29280#msg29280

[6] Nathanial Popper (Jan 2016), A Bitcoin Believers Crisis of Faith -> https://www.nytimes.com/2016/01/17/business/dealbook/the-bitcoin-believer-who-gave-up.html (14042022).

[7] See more: Archie Chaudhury (Oct 2021), Why the Bitcoin Network Is the Original DAO -> https://bitcoinmagazine.com/culture/why-bitcoin-network-is-original-dao (29042022).

[8] Liu et. al (2021), Make Web 3.0 Connected A Perspective from Interoperability and Programmability across Blockchains, pg. 2.

[9] Vitalik Buterin (April 2021), Why sharding is great: demystifying the technical properties -> https://vitalik.ca/general/2021/04/07/sharding.html

[10] Tom Wilson (Marc 2022), Web 3.0, DeFi & dApps Soon On Bitcoin? And 3 High Potential Projects! -> https://medium.com/general_knowledge/web-3-0-defi-dapps-soon-on-bitcoin-and-3-high-potential-projects-ce696a88df47 (24042022).

[11] See e.g., Evan Schwartz (Oct 2018), Layer 3 Is for Interoperability -> https://medium.com/xpring/layer-3-is-for-interoperability-ca387fa5f7e2.

[12] Ibid.

[13]Charles Jenkins (Jan 2022). Impervious Browser: Functionality Overview -> https://newsletter.impervious.ai/impervious-browser-functionality-overview/

[14] Ibid.

[15]AAX (Aug 2021), Layer 3 Solutions on Bitcoin & Blockchain -> AAX Academy https://academy.aax.com/en/layer-3-solutions-on-bitcoin-blockchain/.