What is Blockchain Governance? Complete the Beginner's Guide


Blockchain networks, especially public blockchains, exist as decentralized networks that must maintain tolerance for Byzantine errors to preserve authenticity. This is not only difficult per se, but requires new forms of distributed governance to achieve the long-term sustainability of the network as a whole, balancing human insights and algorithmic governance.

Blockchain governance is one of the most fascinating and complicated topics in space. Blockchain networks that can adapt and how they fit will be key to shaping the industry's future landscape.

 What is Blockchain Governance

The Current Governance Structure

Blockchain aside, it is worth considering how governance works today in the main institutions and on the Internet to contribute to give a decentralized governance context.

Governance has historically been and, probably will continue to be, a polarizing argument. The authority granted to federal governments, centralized technology companies, major media and other influential institutions has been continuously at the forefront of news and debates.

Government models of authority and power typically take decades, if not centuries to form and often grow parallel to cultural changes. The rise of powerful technology companies like Amazon, Google, Apple and Facebook has happened so quickly that it is difficult to assess a precedent for their dominance, especially considering that their dominance is on the Internet, a completely new means of communication. The increasing dependence of people on the screens also gives media organizations similar powers to disperse information to the public.

Of these institutions, what are their shared principles of governance and how do they apply to blockchain networks?

In relation to the next section on blockchain governance, we can divide the governance of current institutions into about 4 categories:

  1. Consent
  2. Incentives
  3. Information
  4. Government structure

While governance is more nuanced – especially taking social / economic considerations into consideration – analyzing governance through the categories described above applies correctly to blockchains.

The consensus typically assumes the form of hierarchical centralization in traditional governance. The United States is a representative democracy composed of elected representatives representing more electoral interests. Companies like Facebook and Twitter operate as centralized hierarchies with top-down power structures. The consensus in these models is through an agreement through refined groups of individuals rather than direct democracies, an important consideration. Although the consensus among the US Congress is often frustratingly difficult to achieve, it is effective in mitigating conflicts that would otherwise arise without representative democracy.

Incentives have a more subtle role in government and a role played in institutions such as technology companies. The incentives in governmental democracies are the mechanics of game theory at work, which facilitate cooperation and defection among the representatives with the cooperation that emerges more often than defection, otherwise the government would fail. The slowness of conflicting incentives in representative democracies is often necessary in the long term, despite its shortcomings. Comparatively, institutions such as leading technology companies are mainly driven by profit. Do not allow misleading advertisements and marketing campaigns to convince you otherwise. The Facebook data scandal is a textbook example to take advantage of its users for such purposes.

The information is difficult to put into context, especially considering the emergence of false news and the ever-increasing polarization of American politics. In the context of representative democracy, information is vital for voters to be informed about topics properly and crucially for their representatives to adequately understand their voters' concerns and respond appropriately. Misinformation is a legitimate problem today and browsing authentic information is not an easy task on a vast Internet.

The governmental structure is appropriately related to consensus and has a distinct component in which it is more flexible in blockchain than traditional institutions. Government structures are explicitly defined and extremely difficult to change. Furthermore, corporate structures such as top-down hierarchies have proven to be effective profit machines, so changing dynamics is not really necessary.

This is where governance becomes interesting. What happens when government structures can adapt more smoothly based on the components above when they are applied to blockchains that exist as transparent and decentralized networks?

Blockchain Governance

On the front end, it is important to make the distinction that blockchain is an innovative technology, with many moving parts and no truly sustainable and sustainable governance mechanism outside of Bitcoin that has only a decade .

Blockchain governance can be broadly divided into 2 main categories:

  1. Off-line governance
  2. On-chain governance

Off-line governance

Off-chain governance looks more closely at structures traditional government. Established cryptocurrencies like Bitcoin and Ethereum use this governance model through a (semi-balanced?) Balance of power between key developers, miners, users, and business entities as part of the community. The sustainability of Bitcoin so far can be largely attributed to the recognition of the need for a slow evolution that consists of gradually improving implementation. This is made possible primarily by its BIP proposal system, from the conservative approach to change by core developers and by contributing to solutions such as the Lightning Network by multiple parties to facilitate further adoption and users. mainstream on board

 Ethereum Guide

Read: what is Ethereum?

However, off-chain governance is relatively centralized and excludes many traditional users who lack the technical knowledge or financial power to make network decisions appropriately. For many, this may seem necessary since direct democracies present some clear threats to sustainability.

Despite centralization, blockchain users enjoy flexibility not otherwise seen with traditional governance models. The hard forks allow users not satisfied with the governance of a network to create their own system by breaking down the original open source protocol. The costs of doing so are drastically reduced compared to the division of a government or company structure.

Hard forks may seem like great solutions for freedom of choice in governance; however, the area of ​​social attack of the blockchains increases and should be minimized to counter this risk, something that BTC has taken into account in a satisfactory manner.

The consensus in off-chain systems is typically reached by community leaders. For example, the out-of-chain consensus of Bitcoin ( not consensus on transactions) is reached by large mining operators such as Bitmain, core devs and corporate entities that interact with each other and come to an agreement.

Bitcoin as an example again, incentives out of governance are disparate among participating entities and may cause problems, with SegWit2X providing an excellent example of this. Miners want taxes, developers want a controlled implementation of change and increased network success, and companies want what's best for their profit. While the misaligned incentives have largely led to the Bitcoin Cash fork, this has not presented a significant problem for Bitcoin so far.

Information on Bitcoin and other public blockchains is a unique proposal. The intrinsic transparency and trustful and decentralized nature of Bitcoin offer insights into the platform's mechanisms not available with governments or large companies. This transparency is profoundly useful, but it can also incentivize polarized incentives from different parties once the network effects consolidate entrenched positions. Information is not perfect in blockchains, but it is much better than traditional governance models and is able to redefine the dispersion of information on the Internet .

The out-of-chain management structure is not centralized like large institutions such as media or technology giants, but still retains a considerable degree of centralization. However, Bitcoin's BIP proposal mechanism and the ability of technically informed developers to make significant contributions to its development separate it from the hierarchical structures of legacy institutions.

The evolution of off-chain governance systems has proven to take time and is generally the result of many individual actions contributing to a broader trend that is virtually impossible to analyze from a macro perspective. Off-chain governance solutions should continue to adapt to the blockchain space and can bring with them some new forms of governance.

On-Chain Governance

On-Chain Governance is the latest iteration of blockchain governance and brings with it some fascinating and polarizing concepts. So far, many of the chain governance implementations have just been launched or not yet launched.

In-chain governance solutions for blockchain mainly implement some form of direct democracy through chain voting mechanisms optimized for that specific network. One of the main reasons for starting chain governance is the historical precedent for governance in general. Governance models clearly take a long period of development. Considering in particular that managing hierarchical governance is in itself a challenge, extrapolating governance to a new technology of decentralized users presents another problem.

EOS is an excellent example of how difficult it is to implement a governance protocol and expect the gate to work. With the current speed and access to information today, the development and solidification of on-chain governance can be accelerated, but it will still take a long time for effective models of on-chain governance to demonstrate their long-term validity. term, if they ever do it.

 EOS Guide

Read: what is EOS?

Consent in chain governance models is generally obtained through direct voting through the protocol. This type of consent represents more than a direct democracy with some slight optimizations for each blockchain. This is a completely new form of consent for governance, so there is no real use case available with sufficient time to assess whether it is or can be successful. Voting results are algorithmically governed and their automatic execution is integrated directly into the protocol.

The incentives in chain governance models vary distinctly from the off-chain form because the project is the transfer of power from miners and developers to users. While this may seem fairer, doubts remain about its effectiveness in properly guiding the development of the platform in the right direction. Conflicting incidents occur naturally between users, and many of them do not have the required technical knowledge or bets (skin in the game) in the protocol to accurately represent the best interest of the platform.

Information in the chain governance systems are similar to the information of off-chain governance systems as the transparency of the blockchain is not removed. However, they differ in that vote and the development proposals take place transparently for everyone. Although this has improved with Bitcoin's BIP proposal, concerns about the centralization of Ethereum in off-chain governance (see the recent decision to reduce the reward for the bloc) illustrate how much transparency is still lacking from many public blockchains with off-chain governance. With in-chain governance, information related to the reduction of the block premium would be proposed and voted by the stakeholders or by an on-chain / off-chain hybrid mechanism with full transparency.

Governmental structure of the chain systems differ from traditional institutions in their approach to direct democracy, something that is not used by contemporary institutions or governments. The chain's governance structure is different from off-chain governance, precisely because it shifts governance across the chain rather than through off-chain channels. Consensus is achieved through a decentralized voting system, which allows the platform to adapt and become much more flexible than most traditional governance models. Decentralized governance has historically worked well only in small groups such as communities. The transition to a large, decentralized network of pseudonymous and sometimes completely anonymous users presents profound challenges.

Taking this into account, it is easier to understand chain governance models by observing some platforms that implement the chain of governance protocols.


DFINITY is anchored as "Computer Internet" which is actually a decentralized cloud computer. Its consent based on Threshold Relay is intriguing and another topic entirely, so let's focus on its governance.

DFINITY employs a "Blockchain Nervous System" (BLS) which is an algorithmic governance mechanism to protect users from attacks and dynamically optimize governance and security on the chain. Basically based on problems associated with hacking (such as DAO) in which hackers are able to run away with stolen funds, DFINITY allows chain rewritings if an aggravated party gets support from the required number peer to reverse the transaction. [19659002] This is interesting for several reasons. First, the chain rewrites with the majority vote effectively removes the immutability of the blockchain. While the DAO attack produced Ethereum Classic based on " Code is law ," The DFINITY model is slightly different because for the rewriting of the blockchain (in this context, now Ethereum), the decision it is taken in a chain rather than outside the chain. This is great for mitigating legitimate hacks in the eyes of many, but on the whole presents some serious concerns about the power of the majority in DFINITY. For example, if the network becomes polarized with 2 divergent opinions (a typical trend of humans), and one party has a majority of 55% while the other party has 45%, which is the extension of power that at the end of 55% will have over 45% more?

The mechanism of rewriting in the DFINITY chain through quorum voting is interesting, but it is empirically a form of direct democracy known as " mass domain " with unproven sustainability since it does not even have launched again. However, voting participation is generally poor, which changes the implications of the long-term majority rule. Once again, DFINITY has not yet been launched, so it is impossible to analyze how it will develop.


Tezos is the "self-modifying ledger" that formalizes chain governance. Similar to DFINITY, Tezos' approach allows participating users of its stake model test to vote on everything, including chain rewritings . This presents similar problems like DFINITY but without an algorithm and specialized "neurons" that make decisions like in BLS.

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Read: What is Tezos?

Tezos uses a demonstration of the stake model, so the vote is weighted according to user stakes. Many average users do not have sufficient financial resources to make a substantial impact on decisions with share-based voting, so this model tends towards centralization and similar problems associated with the dilemma of the majority of direct democracy.

Tezos allows delegated democracies, however. Users can delegate their votes to others, resembling a more representative democracy in governance. The changes are likely to be harder to endure if users actively participate in the proxy delegation that could be useful for the long-term platform.


Decred implements a more complex chain governance model based on the distribution of power between interested parties and miners. Decred has a hybrid job / proof test of the pole consensus mechanism. Above all, it uses a self-financing model of the Dash-like network that finances its development.

 Decred Review

Read: What is Decred?

The Decred community decentralizes these funds as DAOs and can submit proposals for improvement and vote on financing specific developments through a ticket voting process. Users can block funds and participate in 3 governance mechanisms with the " ticket" active receipts, "of which 2 off-chain and 1 on-chain.Through the random selection of tickets, users can vote on the agenda of the chain by voting on the consensus rules, voting to approve the work of the miner of PoW and the vote for the Politeia proposal

The vote of polythey does not occur directly on the chain but is intertwined in the blockchain in specific ways and concerns the votes on the change of the Declining Constitution Similar to Tezos and DFINITY, Decred's ability to "modify" the blockchain raises concerns about immutability and the power of the majority of voters who participate in the protocol, but its hybrid model can prove effective in balancing the power of direct voting on the chain that can lead to problems.

A clear distinction on concerns regarding the power of the majority in modifying the blockchain is twofold. First, modifying the blockchain removes their immutability, a powerful component of their application. Secondly, the ability to modify the blockchain is in contrast to the slow, conservative and gradual implementation of the improvements that is the approach adopted by Bitcoin. Although the Bitcoin model may have room for improvement, it is so far the best example of sustainable governance in the cryptocurrency sector. Modification protocols may prove effective, but the temperament of their event is probably a strong cover against their negative consequences such as moving away from the original principles over time.

The future of chain governance

Chain governance has some decisive implications and has become a highly polarizing topic in the cryptocurrency space. Fred Ehrsam provided an in-depth post on chain governance mechanisms and their future potential. In contrast, Vlad Zamfir responded to Ehrsam's post with some of his serious concerns about the ongoing on-chain government.

Both positions indicate the complexity associated with blockchain governance and how many different iterations of decentralized governance we might eventually see. Haseeb Qureshi also provides an excellent analysis of blockchain governance and explains exactly why they should not adopt traditional models of democracy as governance structures. In addition, Vitalik Buterin also has some important information on the governance of the blockchain.

Decentralized systems are quite difficult to manage in the short term to function properly. The addition of long-term sustainability through the experimentation of bootstrap governance models adds a layer of complexity that obscures any realistic projection of how future governance might be for blockchain.

Regardless of the chain, chain, or combination of both governance models, they will eventually take years to unfold. At that time, there will certainly be revolutionary revelations on technology and evolving governance structures to adapt to the new decentralized Internet paradigm.

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