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Blockchain governance is one of the more intriguing and complex topics within this field; visit our Complete Guide for further insight. Public blockchain networks are decentralized networks that necessitate byzantine fault tolerance to remain authentic, as well as innovative distributed governance models that strike a balance between algorithmic governance and human intuition to ensure the long-term sustainability of the network.
Blockchain governance is one of the more interesting and complex topics within this sector, as its future depends heavily on adapting networks like those found within it. How they adapt will play a critical part in shaping how this sector evolves moving forward.
The Current Governance Structure
Apart from blockchains, it is also crucial to examine how governance operates within large organizations and online to provide some context for decentralized governance models. As is usually the case, the debate about governance will likely remain divisive. News coverage and analysis have consistently focused on whether federal governments, centralized tech businesses, mainstream media sources, or any other influential institutions possess adequate authority over other entities that shape our world.
Governmental authority and power structures tend to take decades or centuries to materialize fully; often, they evolve alongside changes within society itself. Given their rapid expansion over the Internet, it can be challenging to establish an example of how large digital corporations like Amazon, Google, Apple, and Facebook came to dominate this space so quickly.
Media companies now wield equal influence over public information dissemination due to individuals' increasing reliance on screens. Which organizations adhere to similar guiding principles when it comes to blockchain networks?
Concerning blockchain governance, existing institutions can generally be divided into four groups.
- Consensus
- Incentives
- Information
- Governing Structure
Governance can be complex when taking social and economic considerations into account. Yet, these categories provide an effective framework to evaluate the governance of blockchains.
Consensus
Traditional governments tend to implement consensus through hierarchical centralization; representative democracy governs in the US, where elected officials represent public interests. Organizations with top-down power structures, such as Facebook and Twitter, function as hierarchies with complex agreements reached between people rather than through direct democracy. It's crucial to remember this when considering these approaches: their agreements come through group negotiations rather than direct democracy.
Even though reaching a consensus in US Congress can often prove challenging, representative democracy serves to protect itself and limit potential conflict by creating mechanisms to reach agreement on key matters.
Incentives
Government incentives typically play a supporting role; within organizations like IT businesses, they take the forefront. Game theory mechanics underpinning incentives allow representatives to both cooperate as well as deviate. Should cooperation occur more frequently than defection, then governments would collapse quickly.
Representative democracies often depend on an ongoing series of competing incentives over time to operate effectively, unlike large tech corporations, which tend to focus more heavily on financial gain as their motivation source. Do not allow deceptive ads and marketing activities to cause you to change your mind about this issue; Facebook data mining shows us exactly why using consumers for personal gain should never happen.
Information
Contextualizing information can be challenging in today's divisive political atmosphere, particularly amid fake news and division. Yet information remains an integral component of representative democracy for voters to stay fully informed on issues. In contrast, their representatives understand their constituent's concerns and act appropriately. Today, false information poses an ever-increasing challenge, and it may not be easy to access reliable resources on such an expansive Internet platform.
Governing Structure
Blockchain governance differs significantly from that of traditional institutions in that its structure is much more flexible and has a direct correlation to consensus than governmental frameworks that are rigidly specified and hard to change.
Change of this nature may not even be necessary as corporate organizations with their top-down hierarchies have proven successful profit centers. Government can be fascinating. What happens if government structures can adapt more smoothly when applied to blockchain networks as transparent and decentralized networks?
Blockchain Governance
As is always the case when dealing with new technologies, blockchains should be seen as being novel with many moving parts and no provably sustainable governance structure in place other than Bitcoin.
Types Of Blockchain Governance Models
Let's now examine some of the more widely adopted blockchain governance models:
- Centralized Governance: Centralized models utilize decision-making processes similar to corporate governance; such models can often be found within consortiums and private blockchains.
- Decentralized Governance: With mechanisms such as token voting, this approach distributes decision-making across more participants, thereby giving stakeholders a voice in shaping the future of their network.
- Hybrid Governance: As part of an effort to strike a balance between efficiency and inclusion, multiple blockchains combine decentralized with centralized functionality.
Blockchain governance can be roughly divided into two categories:
- Off-Chain Governance
- On-Chain Governance
Off-Chain Governance
Traditional institutions resemble off-chain governance more closely; such a method of administration is used by well-known cryptocurrencies like Bitcoin and Ethereum, where consumers, miners, core developers, commercial organizations, and members of their community all possess equal authority within that community.
One key reason behind Bitcoin's continuing popularity can be attributed to its recognition of the need for incremental innovation over time. It has achieved this through its BIP Proposal system, core developers' cautious approach to change, and multiple parties that have contributed solutions, such as Lightning Network, to encourage greater usage by mainstream consumers.
Off-chain governance, however, tends to be highly centralized and excludes many ordinary users without sufficient financial or technological means to influence network decisions directly. Many may see this approach as necessary because direct democracies pose significant threats to sustainability. Blockchain users enjoy greater governance flexibility not available with traditional models of government or business structure, even while remaining centralized. Through hard forks, those dissatisfied with network governance have the option of splitting off from it altogether and setting up their system without incurring huge financial expenses like breaking apart governments or businesses.
Even though BTC has done well to consider this aspect, hard forks increase the social attack surface of blockchains. They should be minimized to mitigate the potential danger. They might seem like ideal ways to give citizens greater choice in governance matters. Still, hard forks should always be approached cautiously as potential social hazards.
Off-chain systems usually entrust community leaders with reaching a consensus; for instance, Bitcoin achieves off-chain consensus via negotiations among major mining companies like Bitmain, core developers, and commercial entities. Though misaligning incentives mostly drove Bitcoin Cash's hard fork, this has yet to pose major problems for its parent currency, Bitcoin. Information regarding public blockchains such as Bitcoin is an unparalleled offering. As its inherent openness and trustless, decentralized design allow it to remain uncensored by governments or large businesses, these insights into its workings cannot be gained otherwise.
Transparency can be invaluable, yet network effects often create entrenched positions that lead to disparate incentives among various parties. While blockchain data may not always be perfect, they still far surpass current governance models in their ability to change how information is disseminated online.
On-Chain Governance
"On-chain governance," an emerging style of blockchain governance, offers some intriguing and contentious ideas. Several implementations for on-chain governance have either recently surfaced or are yet to launch.
Blockchain governance solutions aimed at creating direct democracy involve on-chain voting mechanisms designed specifically for their blockchain network. Bootstrapping on-chain governance presents many unique challenges. There's no doubt that creating an on-chain governance paradigm takes time - overseeing hierarchical administration alone can be challenging enough, let alone expanding it across an untested technology with dispersed users, creating additional complications.
EOS provides an ideal example of the difficulty inherent in setting up a governance mechanism and expecting it to perform efficiently as soon as it's in place. With today's improved connectivity and information availability, on-chain governance may take less time to establish. Still, successful models need time to prove their long-term viability before showing tangible benefits for society at large.
On-chain governance schemes typically use direct voting through their protocol to reach consensus; such an outcome resembles more direct democracy with some minor adjustments for each blockchain. As it's an entirely novel approach to governance agreements, no practical use case has yet been identified in order to assess its viability. Instead, this protocol automatically executes voting results that are algorithmically managed.
On-chain governance models differ from off-chain models by shifting authority from developers and miners to users, seemingly more equitable but leaving questions unanswered about its ability to guide platform development properly. Users often have divergent interests and often lack the technical know-how and protocol stakes (skin in the game) required to represent the platform effectively and fairly.
Due to blockchain's inherent transparency, data from on-chain governance systems is comparable with off-chain ones; their key difference being development ideas and voting happening openly on-chain.
Although Ethereum's centralization in off-chain governance has come under criticism (with regard to their decision to reduce block rewards), Bitcoin's BIP proposal provides improvements on this front, yet many public blockchains that utilize off-chain governance still lack some level of transparency. Information for reducing block rewards would be presented and approved by stakeholders through either on-chain governance or via an open, fully transparent hybrid on-chain/off-chain system.
Direct democracy techniques employed by on-chain systems' governance structures distinguish them from more conventional institutions; modern governments and institutions do not employ this method of decision-making. And because on-chain governance involves moving governance on-chain rather than through off-chain channels, its structure differs significantly from off-chain governance structures.
Conclusion
Even though blockchain governance may seem complex, its success and continuation depend on being able to comprehend and implement an adequate governance model for any particular project. As technological maturity increases, so will the complexity of governance models become even more essential to its long-term viability. Companies and enterprises seeking to implement blockchain technology often benefit from hiring Blockchain engineers.
