What is the difference between a smart contract and a DAO?

Question

The Ethereum space is full of new terminology, and it's sometimes difficult to mentally discriminate between some of the concepts that this new terminology describes. (I'm having this trouble now... )

In its least abstract sense, an Ethereum contract is just a piece of code. In a more abstract sense it's something that can be used to automate in a decentralised way.

My impression of a DAO is of an organisation (or company) that can exist autonomously. What I'm not sure about is whether a smart contract, or set of smart contracts, can be used to define a DAO. If that's the case, isn't a DAO just a smart contract?

(My question assumes that there's an objective answer, and that it won't get flagged as opinion-based.)

Answer 1

Q: My impression of a DAO is of an organisation (or company) that can exist autonomously. What I'm not sure about is whether a smart contract, or set of smart contracts, be used to define a DAO. If that's the case, isn't a DAO just a smart contract?

A: Yes

A DAO on the Ethereum blockchain is a set of rules implemented as a Smart Contract (or code running on the blockchain). A DAO on Ethereum can hold and release funds based on a set of rules (eg voters approve the release of funds if the project is progressing as promised).

A Smart Contract (or code running on the blockchain) can be used to code the algorithm for a DAO, Pyramid schemes (eg Ethereum Pyramid), lottery and dice games, and other yet-to-be-thought-of things.

See some of the potential uses of Smart Contracts on Where can I find some Solidity / Smart Contract source code examples? .

See The Decentralized Autonomous Organization (DAO) - A Primer for some information on DAOs.

EDIT 27/04/2016 - From Smart Contracts Described by Nick Szabo 20 Years Ago Now Becoming Reality:

Szabo defined a contract as being “a set of promises agreed to in a meeting of the minds [which] is the traditional way to formalize a relationship.” Such contracts are a pillar of a free market economy and can be useful in business relationships, marriages and politics.

and

Smart contracts would improve execution of the four basic contract objectives, which Szabo described as observability, verifiability, privity and enforceability. Among other use cases discussed in the following sections, smart contracts according to Szabo would enable both parties to observe the other’s performance of the contract, verify if and when a contract has been performed, guarantee that only the details necessary for completion of the contract are revealed to both parties and be self-enforcing to eliminate the time spent policing the contract.

Answer 2

There seems to be lots of confusion about what a Smart Contract really is.

Let me put it simple to everyone: A Smart Contract is simply Programmable Transactions.

DAO is a Smart Contract, and the way the transactions are programmed to happen in the DAO is when the majority of the voters (Token Holders Voting) agree in sending a certain amount of ether to a certain address or addresses.

Calling DAO a "Company" is an abstraction of the code, in reality is just a Smart Contract like any other, with certain rules how the ethers it holds can be spent.

Answer 3

[Responding to my own question with material that has come to light... ]

2 years ago (May 2014), Vitalik wrote a post on the official blog that attempts to differentiate between some of the ideas behind the Ethereum-related terminology.

The explanation of a smart contract is thus:

...a smart contract is a mechanism involving digital assets and two or more parties, where some or all of the parties put assets in and assets are automatically redistributed among those parties according to a formula based on certain data that is not known at the time the contract is initiated.

And a DAO thus:

The ideal of a decentralized autonomous organization is easy to describe: it is an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do.

While there's a lot more to the post - including the definition of DOs, DACs, DAs, and an interesting set of discussions in the comments - I now understand that there's significant overlap in how these definitions can be interpreted.

Answer 4

If you understand the concept of LLC's (Limited Liability Companies) under nation state law, it should not be difficult to understand the concept of a DAO and how it relates to smart contracts.

First of all, there is some confusion as to what exactly "autonomous" means. On the one hand there is the idea of robotic autonomy- a completely unmanaged, self-executing business entity. DAO's are systems of smart contracts, and smart contracts themselves are fundamentally reactive - they don't have any initiative of their own. So when you build a DAO, you are creating a piece of programmatic machinery that responds in a guaranteed way depending on its inputs. But it can't act of it's own accord without the help of external oracles or timers, despite some of the "Skynet" hype.

A better analogy for the idea of "autonomy" is to think of the autonomy of an LLC. It is a legal "person", which can own property, be owned by shareholders, hire employees and define corporate bylaws. You could call an LLC a "CAO"- Centralized Autonomous Organization- in terms of the institution that defines and enforces it (government). Since Ethereum is a decentralized institution that enforces the programmatic terms of the DAO, that's a better way of understanding it.

DAO's can support both kinds of autonomy- legal personhood autonomy and robotic autonomy.

Answer 5

DAO is just a type of smart contract. Terminology is still differing yet as to which smart contracts are to be called DAO, DApp, AA, etc...

But a smart contract whose code provides rules for voting by the holders of the tokens, issued by this smart contract, are called DAO.