Solving the Blockchain Governance Dilemma

in #cryptocurrency6 years ago (edited)

In one of my previous posts, I talked about the dilemma of off-chain versus on-chain governance. I highly recommend that you read it before looking at this article, because this is heavily reliant on the topics discussed there.

Empowered by blockchain and DLT (Distributed Ledger Technology), we now have the opportunity to shape the governance, incentives, and ecosystem of our future through programming decentralized forms of governance.


Image from CoinDesk

There are two main properties of any governance scheme:

  1. Incentives. In any system, people have incentives. But these incentives are almost never fully aligned. To build a successful governance system, actors’ incentives should be aligned as close as possible for the good of the network.
  2. Mechanisms for Coordination. But incentives are almost never 100% aligned, so all parties need to find a way to communicate and coordinate based on their common incentives. A major factor is how much of the decision making can be done on-chain versus off-chain, with on-chain usually being the easier route.

Off-Chain Governance Systems Currently in Place


In this section I will go through all of the major systems for governance that are already up and running. These are very primitive and are just the beginnings of governance systems.

Bitcoin


Bitcoin is the very first blockchain governance scheme, as it is the very first blockchain. The system has worked over the years, but it does have its problems.

Incentives:

  • Developers: Increase coin value, social status, ability to influence future changes
  • Users: Increase coin value, increase coin utility and uses
  • Miners: Increase coin value, increase future block rewards, increase future transaction fees

Mechanisms for Coordination:

All coordination for Bitcoin is done off-chain, meeting in forums, slack channels, many times closed to the public and not transparent. Developers communicate through the Bitcoin mailing list and the Bitcoin Improvement Proposals (BIPs).

Resulting System:

The resulting system works a lot like the US government in a system of checks and balances. It is very strong and secure, but is extremely resistant to change, and if change does happen, it is done in a non-transparent way. This is a very good system for a store of value, but not for other types of cryptocurrencies. It’s amazing how well Bitcoin has done considering it was the first ever.

The governance of Bitcoin encourages greed and a self-reinforcing concentration of power into the hands of a few actors in many ways, and incentives are not very well-aligned between the three parties.

Ethereum


Ethereum is very similar to Bitcoin in its governance, but the switch to Proof of Stake in the future will change some things. It will blend the line between miner and user, especially with things like the 1protocol. This could potentially reduce centralization massively, allowing anyone to stake their coins.

The Ethereum ecosystem fosters much more creation and changes by developers, but has an over-reliance on Vitalik Buterin. Also, developers are incentivised not to improve the Ethereum protocol, but to build solutions on top of Ethereum with their own tokens.

Steem


Steem has one of the fastest blockchains running in the world, and uses Delegated Proof of Stake for governance.

Incentives:

  • Users: Increase coin value, increase rewards from posts, new features and utilites
  • Developers: Increase coin value, social status, ability to influence future changes, collect rewards from interfaces to the Steem blockchain
  • Witnesses: Please users, increase coin value, increase witness votes & ranking

Mechanisms for Coordination:

Blend of on- and off-chain coordination. Witnesses produce threads and also communicate with the community. Developers create proposals both on- and off-chain.

Resulting System:

Users vote on representatives as witnesses, who then coordinate on changes with developers, who propose them. This creates a representative democracy, which allows users to not have to worry about whether to support forks or not.

The Steem blockchain has hard forked almost 20 times, but without creating a single duplicate chain. Block confirmation is one of the fastest in the world. Steem is an amazing example of a blend of on- and off-chain governance. The system perfectly fits Steem’s focus: on social interacctions, and has allowed it to be the most rapidly evolving cryptocurrency out there.

While these older chains use off-chain governance primarily (with Steem as a bit of an exception), there are some that are pioneering the field of on-chain governance, and I will talk more about that in my next post.

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Wait what?

$9.77 rewards?

Thank you so much @ausitbank, @msp-curation, @clayboyn.

You really made my day.

you deserve it

It's like just 1% for them of something earning about 1500 Steem a week mining

Yeah... The rewards pool should be distributed better for sure.

i don't think it will, that much going to a concentrated pool of only 20 accounts it just way too bias, we should support a hf that gives it to 200 witnesses

Well, I think it should be less, maybe 100.

But think about incentives. Why would the top 20 witnesses support it if it means that they lose some of their rewards? Sure, the lower ones will love it, but think about incentives...

Maybe they'd be kind enough to support it, or maybe not.

should be staggered upto top 200, eg. 50% goes to top 50, then 25% goes to next 51-100, then 15% goes to next 101 to 150, then 10% goes to 151 to 200.

this will breed great community support and more active witness participation and development

be nice to see some example of governance for Steem, I think this more a task for Agoras and Tau

Yes, I will be writing about projects like those in my next post. Right now I am focusing on non-governance-based coins, especially ones that already exist.

Coins mentioned in post:

CoinPrice (USD)📉 24h📉 7d
BTCBitcoin8485.650$0.07%-13.71%
DLTAgrello0.237$2.03%-26.21%
ETHEthereum681.427$-0.53%-16.39%
STEEMSteem2.801$-1.91%-25.33%

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