Blockchain Governance

I know. Governance and blockchain should never be used in the same sentence. However let’s face it, if blockchain technology is to be adopted by society, some degree of guidance will be necessary.

Governance should only be utilized in certain cases, not on all blockchains

Blockchain governance is something that needs to be used with caution. Governance means some extent of centralization will be implemented and we all know what that results in; corruption, greed, lying, cheating, deception, pretty much every negative aspect of humanity comes to the surface when power is given to a few. With that being said, I believe that a blockchain that is specifically intended for digital cash transfer and is not a platform, like bitcoin and litecoin, should stay as far away from governance as possible. The only problem is that forks must occur when changes need to be made. There are issues with litecoin and bitcoin, more specifically and most concerning is scaling. However, solutions are being incorporated without the need for a fork, for example, the lightning network. These digital cash type blockchains should be as decentralized as possible to avoid turning into a centralized bank. Platform blockchains are a different story though.

Governance on a Platform Blockchain

Blockchain platforms from whence decentralized applications can be built such as EOS, ethereum, NEO, NEM etc. should indeed have some degree of governance implemented. The multi-dimensional nature of these types of blockchains is how they differ from digital cash type blockchains such as bitcoin and litecoin where their only goal is to transfer money directly from one party to the other. Platform based blockchains have many more features compared to digital cash type blockchain. NEM, for example, has a plethora of features that each provide a possible point of disagreement. NEM features namespaces & mosaics, Apostille (a notarization type service), multi-signature wallets, a private blockchain, aggregate transactions and the list goes on. The point being that platform blockchains have a vast number of things people could disagree upon relative to a digital cash type blockchain. Therefore, there needs to be some sort of governance model in place all the while still retaining decentralization.

EOS accomplishes a degree of decentralized governance kinda sorta almost good. Termed the “ethereum killer”, EOS is a platform blockchain where decentralized applications can be built upon. They most certainly have issues they need to sort out and one could argue that they are somewhat centralized and that tokens are disproportionately distributed, but they are the first to experiment with blockchain governance on such a scale. A $4 billion dollar experiment I might add. EOS uses what is called a delegated proof-of-stake (DPoS) consensus algorithm. In short, DPoS has 21 elected individuals or groups (termed block producers) that are voted in by token holders and earn a reward for investing in the equipment necessary to produce blocks, validate transactions and secure the network. This voting is an ongoing process and the top 21 block producers are in constant competition with one another for a spot in the top 21. Some argue that 21 is too centralized. However, the 21 are constantly changing and are spread all around the world. 21 constantly changing block producers is a alot more decentralized than 5 mining pools that run ethereum.

Nonetheless, EOS provides a way for the token holders to have a say in what happens within the EOS ecosystem, without the need for a fork. This type of governance model is something I believe platform blockchains will need in order for businesses and for society in general to adopt these technologies. Knowing that you have a say in what policies are enforced is something businesses and individuals need. They need to know that the blockchain they are using in not going to split and possibly become obsolete. Ethereum cannot provide that peace of mind. There is no formal decision making process where token holders have a say. Governance, in a somewhat decentralized manner, is what will be needed for blockchain platforms to mature and be adopted on a mass scale.

Blockchain Governance was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.