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:
- Allow many governance systems & monetary polices to be tried at the speed of software
- 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?
- 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
- 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
- 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.
- 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.
- 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.