What is Blockchain Governance?

Talk about blockchain governance, some may ask, from which parliament they are? Which party do they belong to? Or, is it really affiliated to the government…? Well, in the grand scheme of the system, between blockchain and government is different. Blockchain is decentralized, while our government system is centralized. That is why nations need a leader, either president or monarch, as the axis of government.

Well, in this article, we will —of course, not talk about politic!— explore more about—

Blockchain Governance

Governance itself is a term that relates to decision making processes within an organization  — who is responsible for what, how are major decisions being taken or implemented, is authority vested in a select few or distributed among all participants, etc. The governance of a blockchain project is crucial for its sustainability as it enables stakeholders to discuss and make decisions on how the blockchain should evolve. Due to the large size of blockchain projects, governance is especially relevant in order to manage and coordinate an entire community toward the same goal.

As aforementioned about parliament, government, etc, in our real life system, in the blockchain network, government is a prime example of how governance functions. There are different types of governments and modes of governance. However, we can easily say that there are three principles that dictate governance. These principles include:

  • Rulers, providing the governance, can be a network, market, social system, or the government.
  • Rules, set based on the participant’s goals and needs. However, governance models can be far more complex than this. The governance models that we are going to discuss suffer from problems and complexity as they grow. 
  • And participants.

Researchers also state that, ”little is known about what and how key decisions are made and enforced in blockchain systems”. While, according to Zamfir (2019), it is not only difficult for stakeholders to understand how blockchain governance works, he also claims that some people are not even aware about the fact that they are stakeholders themselves in the decisions made during blockchain governance.

Governance Types

As broadly categorize, there is two types of major governance types:

  • Standard Governance
  • Blockchain Governance

Standard Governance

It applies to corporations, non-profits, stakes, partnerships, project teams, business relationships, and other similar groups. On the other hand, standard governance applies to any human group doing a creative or purposeful activity. Which can divided into following:

  1. Direct Governance,

In this type of governance, every vote actually counts because it is more of a responsibility than a privilege. Without intermediary, it can offer transparency, which means the government offers minimal division and more collaboration opportunities and is open to reach a decision. The government is much more accountable, so the participants have much control over what they get and rogue officials in the government can be removed quickly. But, there is also downside of the hill. Because the responsibility to vote, it can be costly due to the need of educating everyone on the topic and the voting process. Some might be unwilling to participate, some might selfishly vote without considering the greater good. This lead to the difficulties to reach a consensus and difficult to manage as the group grows in size to the point of being non-functional. Information overload might be possible due to the short attention span of today’s people, if the participants are ‘take no mind’ this can ’cause high manipulation of influential users can pressure others.

  1. Representative Governance

The chosen representative takes decisions on behalf of the people is what this type of governance is about. So it can be said this model is efficient, can take decisions faster, and easier to address any problem. This lead to cost-effective too, since it’s easier to inform a small group with knowledgeable people. Final decisions are balanced for the greater good rather than users or people get to choose their representative. And just like coin, there are two sides that conjoined, from the good to the less likely of this type of governance. The representatives may work in their self-interest once they are elected, they may not play according to the people’s trust, and this might surface unhappiness of the users with the decision for major benefits. Lack of accountability among representatives inherited here.

Blockchain Governance

The key feature is decentralization. Governance of the blockchain describes the development, adaptation and maintenance of the blockchain technology itself. Continuing with the definition of the concept, Ziolkowski et al. (2019) simply describe blockchain governance as the placement and enactment of decision rights. While blockchain governance definition of OSS governance by Markus (2007) is adapted fruited a definition:

“The means of achieving the direction, control and coordination of stakeholders within the context of a given blockchain project to which they jointly contribute.”

Dealing with the different governance layers and the different technology layers that makes up the blockchain system is what blockchain governance up to. They also covered its operations depending on whether it is a framework, application, or network. Also, the rules for governing the system depend on the internet infrastructure which makes up that particular blockchain technology.

Blockchain Governance Importance

As a technology that continues to develop and develop, adaptability also increases to be two important characteristics in blockchain governance. Many experts argue that the ability to rapidly develop and evolve is the main differentiator for blockchain to stay current and competitive. However, it is also important to ensure the efficient functioning of blockchain governance while it is under development around the world.

Blockchain Governance Responsibility

Blockchain governance usually involves four central communities, rather than just one. But it’s depending on the blockchain itself, it might vary from blockchain to blockchain. These communities are as follows:

  • Main code maintained that underpinning in the blockchain is the responsibility of core developers. They can write, update, or remove code that has a direct impact on the blockchain’s functionality, and hence can impact every user out there.
  • Run operations and deciding whether features will run on nodes or not is the node developers responsibility. They carry the blockchain ledger full copy on their side, also dependent on node operators to agree on their provided features.
  • People who are part of the blockchain ecosystem by holding blockchain tokens with them are token holders. They are also seen as investors who make their voices heard by having a good amount of token percentage holding, depending on the various blockchains they have various degrees of voting rights on what features to implement, set prices, etc. 
  • As a firm or a non-profit organization that takes on various roles, the blockchain team’s primary role is to steer the fund and project development. However, between the investor community, the core developers and node operators they can act as a mediator when it comes to negotiating for features. Analogically speaking, a blockchain team is a marketing team that tries to sell the product and communicate the needs of investors to other communities such as developers and node operators.

Blockchain Governance Elements

There are four important elements in categorized blockchain governance. Identification of the main categories is important to make it easier to organize the blockchain, so that it can be evaluated and developed effectively. The following are the main elements that have been categorized:

Consensus 

The consensus algorithm takes care of the transaction verification within the network. Different blockchain systems implement different consensus algorithms which can benefit the miners directly or indirectly. Some of the consensus algorithms can be listed to be Proof-of-Work (PoW), Proof-of-Stake (PoS), Practical Byzantine Fault Tolerance (PBFT), Proof of Burn (PoB), Proof of Capacity, and Proof of Elapsed Time

One of the many consensus algorithms mentioned above is Delegated Proof of Stake (DPoS), which a blockchain governance can be run with one of the consensus mechanisms created by Dan Larimer (also a Block.one CTO, which launched the EOS blockchain). This consensus is used in the Vexanium blockchain network so that it can achieve the key features such as scalability, no transaction fees, basic programming language, blockchain governance, and upgradability.

DPoS is run by block producers. Block producers as a representative of Vexanium chosen by all the users in the network using votes to be functioning block producers on the network. These block producers have the responsibility to make and validate blocks within the network, earning rewards for their effort.

This means these delegates will govern the system. These block producers are responsible to validate transactions, administer dealings fees, block sizes, witness pay, etc. Moreover, the election of block producers may be a continuous method that people within the network undertake.

Incentives

For everyone who is taking part in, incentive given for the wellness and functionality of the network. To miners or other entities that help run the blockchain and bring success to the network. But, disparate incentive has significant potential to cause problems resulting in a hard fork.

Information

Governance of a blockchain needs to be understood by stakeholders in the blockchain ecosystem. As an organization looking to build a blockchain application you must decide on which blockchain you are going to build. Because information plays an important role in blockchain, both public and private, which is decentralized. Any information needs to be on the network.

Governing Structure

The governance structure in the blockchain case is more flexible and can be linked to consensus. In comparison, corporate identity acts rigidly in terms of governance structures in a top-down approach. Whereas in the case of blockchain, the governing structure must be fluid to ensure that it conforms to the ever-changing dynamics of the network.

Blockchain Governance Layers

Off-chain community

As the highest of the three layers, the off-chain community layer encompasses the governance matters taking place in the real world with a focus on the wider community of a project. It highlights how a project is defined more generally and captures the ties of the community to the governance layers below.

Off-chain development

The off-chain development layer encompasses the governance matters taking place in the real world with an explicit focus on the software development process. For example, it looks at how roles related to development interact and decisions are made in the maintenance of the protocol.

On-chain protocol

The on-chain protocol layer comprises all the governance matters taking place on the blockchain through its underlying protocol. Examples include the decision making processes, voting mechanisms and rules of interaction encoded directly into the infrastructure of the blockchain.

Conclusions

As much as we can, we have covered up the blockchain governance principles from blockchain governance, how it works, and the layers of it. As the blockchain itself is open to development, any new developed possible features can be expected in the future. More in depth about blockchain governance, can be read through this bible.

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