Blockchain Governance Models

In this article I will explore governance and consensus as it applies to blockchains and blockchain applications. You may be familiar with some of the acronyms used, but please put aside your own definitions such that you may be open to the conclusions described. This discussion is about preserving the integrity of the blockchain and allowing it to flourish even as it is used in more and more complex applications. Blockchains take the resiliency of humans and string it together across a self-validating backbone, cementing progress in consensus and growing like a living thing. Blockchains make decisions and can split upon irreconcilable differences, thereby revealing themselves as ideally governable things.

Distributing Consensus

Decentralized autonomous organizations (DAOs) are virtual entities comprised of a large number of individual actors that respond according to a well defined set of rules. These rules are often organized by a broad social structure that constitutes ‘governance’. Under this umbrella, cryptocurrencies such as Bitcoin are readily seen as paving new ground on DAOs and distributed consensus mechanisms. They are very narrowly defined organizations, simply concerned with bookkeeping of address balances, but they meet all the requirements of decentralized decision making. Proof of work networks have a diverse system of economic and governance structures that motivate the resulting consensus protocol properties. The dynamics of cryptocurrency governance can often resemble the diversity of sovereign governance, including all the corruption and scandal associated with it. The philosophical consequences of governance on cryptocurrency protocol results in a fundamental truth: all cryptocurrency protocols are subjective, in that they rely on the consensus of their government.

Peercoin and proof of stake implements a self-consistent governance structure that targets the users of the currency, specifically the ‘minters’, as the governors. These minters collectively have a stake in the chain that not only keeps them honest, but also causes them to seek to better the protocol. In so doing, the collective brain behind the blockchain is aligned with the interest of its own survival and worth. This helps avoid self-destructive tendencies that may otherwise be imposed by a government whose intentions are misaligned with the intrinsic value of the chain.

Delegating Consensus

As a representative democracy seeks central figures to mitigate scaling concerns presented by decentralization, delegated decentralized autonomous organizations (dDAOs) choose leaders to manage the distributed consensus process. A prime example of this behavior is Dash, which uses masternodes to provide a second tier of network governance that provides instant anonymous transactions that are later validated by the underlying blockchain. These masternodes bond some collateral in order to prove their stake in the system. dDAOs like this have a promoted, more exclusive organization built on top of the chain that performs tasks deemed impractical for the full decentralization of distributed consensus.

Accompanying Consensus

Decentralized autonomous companies (DACs) are consensus driven networks with a specific design purpose in mind. The blockchain is the means by which voting and dividend distribution is done to simulate a ‘share’ without registering with any regulating body. In this way, it is autonomous with a decentralized backbone. There are varying levels of decentralization taken by different DACs. Nu, for example, was an initial implementation of a DAC that could elect addresses to receive tokens and vote on motion hashes. The distributed consensus is thereby beholden to the governance of the majority shareholders. As there are no regulatory bodies to counteract explicit tyranny of the majority, direct attacks are carried out on the consensus process as a means to achieve an advantage in voting. The fundamental conflict between political partisanship and decentralization makes for a rocky atmosphere for secure, immutable consensus.

Submitting to Consensus

Instead of building a DAC into the chain like Nu did, another approach is to build on top of an existing chain without changing the core protocol. In this form, the reality of the DAC is actually a demoted (rather than promoted), exclusive organization compared to the underlying chain. The natural state of this governmental structure is that the DAC is beholden to the blockchain DAO, in that if the blockchain changed its protocol the DAC would be forced to adapt. The counter-pressure of the DAC on the DAO can sometimes upend the governmental structure, causing a serious existential crisis for the network.

As a case study, we can look to the Ethereum blockchain. Their first attempt at a DAC was called “TheDAO” and it was hailed for its decentralization because the governance was directly related to share ownership. A fatal bug was found, compromising a huge portion of the underlying blockchain. The biggest long-term effect that TheDAO had on Ethereum was to apply political pressure to cause the governers to adjust their consensus protocol. A minority of the chain did not accept the pressure and forked off into its own project: Ethereum Classic. While this fracturing of the community over clashing ideals can be beneficial in a corporate environment, the distributed consensus process is much more secure for the average user when such unstable events are avoided.

Ignoring Consensus

Separating corporate governance from the underlying consensus process entirely will advance the longevity and integrity of DACs by improving their transparency. The ideal is that of an immutable blockchain that records a company’s demise without flinching. A great step in this direction is providing an exit strategy for the company in the case where the distributed consensus process becomes untenable. Blockchain agnosticism achieves this by allowing a company to port its fundamental structure easily between chains by cleverly encoding virtual token transactions into a generic cryptocurrency transaction. PeerAssets will be a prime example of agnosticism with its ability to clone over to a blockchain like Bitcoin or Litecoin in the event of a consensus failure on its host chain. By entirely separating consensus governance from corporate governance, blockchain agnostic DAC protocols are transparent and robust to corruption.



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