Can the blockchain governance problem be resolved?
Blockchain and crypto projects have three main areas that require governance to keep a blockchain running, developing, and safe:
- Consensus mechanism – a protocol for all nodes in the network to agree on the transactions added to the blockchain
- Funding governance – where should funds be directed within the project?
- Project governance – pretty much everything else involving changes to the project
The scaling problem
Blockchain networks must also cope with increased demand for services. To do that, the system may need more nodes, which means more people involved. Adding more people spreads decision making power over a larger group. We all know the difficulty in choosing a restaurant with twelve friends, as opposed to just two. Someone always feels unhappy. Or a few of them pressurise the others into a different decision.
We can see similar examples of what happens when a blockchain project community reaches a certain size. And members cannot agree on decisions. Community members cannot reach a consensus by simple majority when controversial changes are proposed. Blockchain governance fails. The main reason why forks happen and create a “new” token as a result, such as Bitcoin Cash and Ethereum Classic.
It is not just disagreements that cause issues. If there are such a large number of members, and each can propose any change to the project, how can each member keep track of everything that is going on across the whole project? How does each decision get the attention it needs? How do you avoid decision fatigue among members? And what do you do about silos and malicious parties who will influence votes?
The blockchain developer community knows these issues, and is actively debating the best way to solve blockchain governance at scale. Part of the debate is whether or not to have governance programmed into the blockchain protocol itself. This would mean that one member could propose changes to the protocol. If voted through, those changes would automatically propagate through all nodes.
Fred Ehrsam, Coinbase co-founder, in 2017 posed the problem of blockchain governance and came up with several governance models. Including on-chain governance. Ethereum’s Vlad Zamfir, shot back, outlining why on-chain governance is dangerous. He explained that it is not possible at scale ensuring all voting participants have interests aligned with all users.
Unfortunately, the answer is not yet clear. Despite the heated debates, the developer community seems united in its recognition that a solution is necessary in order for the future good of the technology itself. There are some projects out there that are proposing voting mechanisms within their own platforms and protocol. DAOStack is one. Decred is another one.
Governance itself remains off-chain. Whether these solutions will solve the problem remains to be seen. However, the developer community is attacking the problem of decentralised blockchain governance at scale with priority and passion. This may end up being the make-or-break of the future of blockchain technology.
This article is an abridged version of an article originally posted at Coincentral.com (a P27 Partner) under the headline “Solving Decentralized Blockchain Governance Is Key to the Future of Crypto”.
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