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A Summary of

Blockchain governance

by
Fred Ehrsam
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Why Blockchain Governance Matters

  • The most successful blockchains adapt to their environments. This makes mechanisms for change crucial & governance a vital problem.
  • As blockchains emerge as a new global infrastructure, governance system design is incredibly high leverage.

Blockchains are unique because they:

  1. Allow many governance systems & monetary polices to be tried at the speed of software
  2. Lower the consequences of failure in these trials The result will be a Cambrian explosion of economic & governance designs; blockchains may teach us more about governance than we have learned in a long time.

2 Critical Components of Governance: Incentives & Coordination Mechanisms

The 2 largest blockchains today are Bitcoin & Ethereum. How do they perform on the critical components? - Bitcoin - Incentives - Developers: increase value of existing holdings, social recognition, maintain power for control over future direction - Miners: increase value of existing holdings, expected future block rewards & transaction fees - Users: increase value of existing holdings, increase functional utility - Mechanisms for coordination - These are mostly off-chain, with developers coordinating through the BIP process & a mailing list. Miners coordinate on-chain through their creations The resulting Bitcoin system is very similar to the US government with checks & balances reliant on transparency. - Ethereum is very similar to Bitcoin as of late, but dynamics will change as Ethereum moves to proof of stake. - Coordination has been swifter, largely due to a culture more open to change

New Chains Experimenting with On-Chain Governance

  • Tezos
  • Anyone can submit a change to the governance structure in the form of a code update
  • Power is shifted towards users & away from developers & miners
  • DFINITY
  • Tokenholders can roll back or edit the ledger or rules of governance
  • DFINITY is maximally flexible

On-Chain Governance: a Double-Edged Sword

  • Like anything coded, it can be exploited or gamed more quickly & easily if flawed.
  • Interesting learnings will come from exploring the balance of mutability.

Future Approaches

  • Futarchy: society defines values & prediction markets decide what actions maximize those values
  • Liquid democracy: everyone can vote, delegate their vote, or remove their delegation at any time
  • Quadratic Voting: money buys votes, but with strong diminishing returns

Voting with People or Money?

  • An issue with one person = one vote systems is susceptibility to sybil attacks.
  • Blockchain-based identity systems like Civic can help.
  • Reputation within a token community will also be critical.

Other Tools

  • Off-chain futures markets already seem to be a powerful tool.
  • Forking is always an option, with voice as governance, weak exit as selling coins, & strong exit as forking.
  • Finally, community suggestions can also be of value.
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