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  • Mayank Mishra

Centralized vs. Distributed Organizations (DAOs)

So to begin with, what is the major difference between a centralized vs. a distributed organization(DAO)?

A centralized organization is one that has a top-down approach for all the decision-making, there are many examples, and almost all the companies built after the industrial revolution follow this approach- CEO, C-Suite, higher management, leaders and managers, team leads, seniors, ICs, Associates, Interns.

As per Vitalik Buterin (founder of Ethereum), a DAO is:

[…] what if, with the power of modern information technology, we can encode the mission statement into code; that is, creating an inviolable contract that generates revenue, pays people to perform some function, and finds hardware for itself to run on, all without any need for top-down human direction?

A famous example to understand why distributed organizations/networks win in the long run is the rivalry in the 2000s between Wikipedia and its centralized competitors like Microsoft’s Encarta.

Theoretically speaking, If you used the two products in the 2000s, Encarta was a far better product, with better topic coverage and higher accuracy. Whereas Wikipedia was still a work in progress product.

But something interesting started to happen, Wikipedia improved at a much faster rate as it had a very active community of volunteer contributors who aggressively started contributing to the platform, they were primarily attracted to Wikipedia for its decentralized, community-governed nature (DAOs sounds familiar?) and in 2005, within a few months of the community’s active participation, Wikipedia became the most popular reference site on the internet and its major centralized rival Encarta was shut down in 2009.

Why is this story of rivalry important in the context of web3?

There are some major learnings here, the first one is that when you compare centralized and decentralized systems (DAOs) you need to consider them dynamically/agile/living entities, as systems/processes, instead of statically, as rigid products. Centralized organizations on the other hand often launch with a polished product but only get better at the speed at which the employees at the organization that hired them to improve them.

Decentralized systems start out as MVPs(Minimum Viable Product) but, under the right conditions, it grows exponentially as it quickly attracts new contributors. Another great example is the success story of Github, launched in 2007 and later acquired by Microsoft for $6 Billion. Github made coding social and also open-source. It remains to be the #1 destination for developers across the globe for a code repository. This highlights the debate around why decentralization is important and why the world needs to move towards it.

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