The mechanism of implementing and managing the updates to a blockchain protocol, to propel its evolution and ensure sustenance in the competitive digital space is called governance.
Previously, this decision-making was controlled by the few developers who used methods such as social platforms, word say, offline voting, blogs, and forums to make decision choices for the blockchain ecosystem. This method where the stakeholders had only a faint voice, raised concerns regarding the decision-making process being controlled by the privileged few, which led to the transition to an on-chain governance model.
On-chain is the mode where the stakeholders cast votes leveraging the rights they earn in proportion to the tokens they hold, known as consensus. They have an additional responsibility to ensure that proposed changes are upvoted in the interests of the ecosystem and the community only. Since the voting process governs what and when the update is applied on the blockchain, the system lays the foundation for Decentralized Governance (DeGov).
DeGov or on-chain governance is favored over off-chain governance as it addresses a few prominent concerns:
- The uncertainty surrounding whether and if at all, when; a decision made through the community vote (off-chain) will be implemented.
- Instills a sense of accountability among the decision makers as the blockchain architecture is embedded with traceability of all actions and decisions made.
- The High level of transparency ensures consistency and fairness across the system allowing the users to make informed choices as to whether or not to join a community as the decision-making process remains accessible.
- When the involved parties disagree, the only choice is a fork causing the existing community to split.
- Most importantly it upholds the philosophy of a democratized system governed, owned, and run through the community without any centralized controlling authorities.
Presently, the token based, on-chain governance mechanism has its limitations:
- The decision-making is controlled by the wealthy few who own more stake and hence enjoy more weight per vote rendering the consensus plutonomus.
- Token-based voting empowers the token-holders and undermines the interest of other community members like the developers, miners, validators, etc.
- The voter turnout is quite low either due to a lack of knowledge about the involved intricacies and understanding of the impact a decision might have in the long term or due to little faith in a system favoring higher stakeholders.
- There is a higher risk of conflict-of-interest issues among the elite and the peripheral users.
- High vulnerability to vote-buying as voting rights are coupled with economic benefits through the consensus mechanism itself.
A decision-making process that is cohesive and favors the global community, in both time and effort-efficient manner is what makes governance trustworthy. This gives rise to the need for a method of governance that is not dependent on “how many tokens a stakeholder has”, but on factors that can even out the rights disparity without compromising the fundamental principles of DeGov.
One of those is a tokenless voting mechanism. It eliminates the dependency on tokens or the wealth an individual holds in a system. There still needs to be a way of determining who gets a say in the decision-making process and a reasonable determination of why and to what extent. A few solutions proposed for the same are listed below:
- One head one vote
This mechanism involves identifying the individual account holders and assigning a single vote with equal weightage to each address, much like the manner a traditional electoral system works.
Participation and expertise in impact analysis remain a constraint for such a proof of personhood system. The mechanism puts at risk the anonymity of participants as there is a huge possibility of one individual owning multiple addresses on the network.
- Proof of participation
Participation in a blockchain protocol may happen in terms of investment, development, or design. In proof of participation, the voter needs to attest to participation in learning about the blockchain system, investing, or being a technical expert. This involves a complex process of algorithmically determining the criteria and legitimacy of participation and finally assigning the voting weight for the voter.
- Quadratic voting
This is a hybrid mechanism that gives the power of voting to token holders but the “strength” of that power is determined through other factors like strength of belief in the proposal, participation, personhood, and intent. Although, this system involves tokens the overall controlling power in a consensus mechanism gets distributed across the voters.
- Limited Governance
According to Vitalik Buterin, it is one of the most appropriate solutions. The mechanism involves fixing certain parameters and allowing only a few others to be affected through the voting mechanisms. Thus, the updates are partially controlled through codes and protocol definition itself while only a few others can be voted for. This mechanism does pose a few restrictions on the scalability and flexibility of the blockchain, yet seems a secure mechanism for permissioned ones.
Based on the principles of “vote values but bet believes”, this is rather a controversial manner of introducing updates to an already volatile ecosystem of blockchains. It emphasizes voting not on an individual decision but the prediction of how it can impact the system and give direction to it.
It works by placing bets on whether a particular proposal will be accepted or rejected, and whichever bet wins is the one that sustains. As such predictions depend on analysis of the benefits or impacts the proposal will have, and the knowledge about the majority would be in favor or against those. It requires a deep understanding of the untamed blockchain market and the protocol under consideration along with the community involved.
On-chain governance ensures decentralized and transparent decision-making. A balance between individual ethos, blockchain growth, innovation, and general community interest needs to be maintained. Which mandates that the economic repercussions do not become the motivation behind any vote. To which a tokenless consensus is an evident solution. Though the blockchain space is still experimenting with these mechanisms, a well-defined methodology in the general interest is sure to surface as the space and the user mature.
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