The Most Serious Issue With Blockchain Technology Is Governance

Blockchain technology appears to be impregnable on paper. There are nearly endless possible applications for the new technology, which is an online distributed ledger that is totally self-governed, unchangeable, anonymous, and safe. The formation of governance systems, on the other hand, is a critical step in the growth of any blockchain.

This component of blockchain, which is the responsibility of the project’s or network’s founders and developers, is likely the most accurate indicator of a chain’s success or failure. While many developers have a strong notion of what blockchain governance is and how they want it to work, actually accomplishing these objectives can be difficult.

Consensus Among Users

Not only does blockchain administration necessitate consensus among validating nodes, but it also necessitates consensus among network users. Dash was one of the first projects to introduce the concept of blockchain governance. In the case of Dash, a network of masternodes was important in achieving these objectives. Masternode operators can vote on budget ideas, giving members of the community with the most invested in the project a way to make decisions and establish consensus on new advancements.

Many other cryptocurrency projects have found Dash’s model useful, however each is slightly different. A developer may also include voting rights in the token, giving holders the option to participate in the governance process while also helping to increase usage incentives. While this is a simple and, some might argue, haphazard attempt to harness the potential of blockchain, other initiatives are attempting to be more imaginative in their governance systems.

In the Community’s Best Interest

It can be difficult to find governance methods that incentivize voters to act in the common good rather than self-interest, especially in the case of extremely successful bitcoin ventures. In this light, Storecoin may be one of the more intriguing initiatives. According to Chris McCoy, the project’s developer, the cryptocurrency replicating the US Constitution has four independent branches that check and balance each other on protocol-level, key people, and monetary policy choices. According to McCoy, blockchains require an enterprise-grade governance [model] that is trustworthy, enforceable, and reaches a democratic conclusion. Although Storecoin has yet to gain traction in the digital currency market, its governance method is unique.

Another initiative, EOS, intended to incorporate the United States Constitution into its governing mechanisms. Founder Dan Larimer, however, was compelled to return to the drawing board in search of a new model after facing backlash from the wider digital currency community. He left in 2021 owing to concerns about censorship in the sector. Another initiative called MakerDAO tries to use a “governance risk framework” to diversify trust in trustless ecosystems.

Tezos, a cryptocurrency project, also demonstrates a potential flaw in governance models: human users. When Tezos first launched in 2018, it promised “a formal mechanism through which stakeholders can efficiently manage the protocol and execute future developments,” offering “a formal method through which stakeholders can efficiently govern the protocol and implement future innovations.” 5 Bitter feuds among Tezos foundation members, on the other hand, crippled the project early on, forcing developers to rethink their structures and ambitions.

Surprisingly, the world’s largest digital currency lacks the governance models described above. In this way, Bitcoin was created without any kind of control, and the project has continued to thrive in a fully decentralized manner. While some may claim that this proves there is no need for governance, others are likely to argue that the bitcoin project could be even more successful with a strong governance mechanism. The debates over whether and how to implement governance structures for cryptocurrency projects will undoubtedly continue for as long as the field is active.

What do you think?

Written by Jordana Williams

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