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governance blockchain on chain
governance blockchain on chain

Introduction to Governance

Disclaimer: The content of these research summaries has been written after a year of reading, researching and writing about blockchain technologies and applications. Definitions may vary depending on the paper cited. The summaries provided are subject to further iterations; whereby, the first version relies on my personal understanding of the industry and the technologies. Most of it is based on informal discussions, academic papers, industry whitepapers and primary research. These research summaries may foster from previous research but do not replicate any ideas or content created previously. 

For comments, references, contribution proposals etc. please contact Anais Urlichs on Twitter, LinkedIn or Email under urlichsanais@gmail.com 

This docs has last been updated on: 07.04.2019

Overview

In contrast to previous summaries, this introduction to governance will merely provide a short overview, broad distinction between governance processes, and additional readings. Generally, there is no single definition of governance, nor guideline on how governance might be implemented, neither in centralised or decentralised systems. Thus, readers are encouraged to gather their own information and form ideas and opinions to contribute to the discussion. 

With the gradual emergence of technology into human lives and communities, it is essential to discuss ways to govern those. Simply not facing technical governance, the danger of unwanted, unforeseeable and unanticipated outcomes will only build up, up to a point that forces humans to settle for the next-best governance strategy available; potentially causing more damage than its technological benefit. Areas of computer science and specifically replicated ledgers are not a tech-people-only playground. Instead, it requires the contribution of psychologists, sociologists, politicians, lawyers, environmentalists, etc., who are encouraged to collaborate and share ideas to enhance the positive impact of governance decisions. 

Each community or collection of individuals requires some level of coordination. This includes the level of authority attributed to certain team members, tasks, responsibilities, the design of processes, interaction and communication strategies. Most governance relies on the emergence of some form of authority to manage the coordination between group members. The management entails the design of and decisions upon processes to provide coordination within the community. Arguably, the design of processes depend on the goals of the authority within the community, whereby individual community members usually have little contribution rights. 

In contrast, replicated systems such as blockchains aim to empower the community, group members and even individual nodes (whether or not governed by a user). In theory, for a system to be as decentralised as possible, it has to include the sentiment of as many group members as possible and act upon governance processes in the most transparent and reliable manner. Governance processes are the protocols, set of guidelines or standards that foster the decision making on state updates within a system. A community will constantly change and aim to evolve the system that it is dependent on, i.e. implement state updates. Depending on the importance, impact and scale of the decision, no single entity should be able to implement such state updates independent from the community since the entity might be selfish, compromised, corrupt or in any other way malicious. Thus, it is essential to prevent a central point of failure, which might abuse its decision making power against the good of the commons. However, the design and implementation of such governance processes is highly difficult and controversial.

Following questions may arise in the design and implementation of (decentralised) governance:

  • Who is referred to by the community of a system?
  • Are any stakeholders not included in the decision making processes? If so, why?
  • Can we include all stakeholders into the governance process? What prevents us from doing so?
  • What is the community responsible for?
  • What are individuals within the community responsible for?
  • Can individuals be held responsible?
  • How can individuals be held responsible?
  • Do we want to hold individuals responsible for malicious behaviour? What happens if we don’t? What happens if we do?
  • What are legitimate governance processes?
  • Who defines legitimacy? Is legitimacy objective?
  • How do we attributed community members authority?
  • Should individual members have more authority than others?
  • What decisions should individual group members have authority over?
  • Does every system have a natural tendency for an authority to emerge? Is that a good or a bad thing and in what cases?
  • How easy is it to replace group members with higher levels of authority?
  • Is there such a thing as decentralised governance?
  • What processes is decentralised governance dependent on?
  • How do we design and implement such processes?
  • What characteristics should decentralised governance processes have?
  • Who can decide upon those characteristics and why?
  • Are we limited by centralised governance designs?
  • Is it possible to design decentralised governance within current legal structures?
  • How do legal structures have to evolve to make space for decentralised governance?

And the list goes on and on. Surely, there are several people within the crypto/blockchain space who believe to have found an answer to some of those issues but might be disputed by others. Generally, there should not be any form of right or wrong in sharing ideas around governance processes and structures. Instead, the community should foster an inclusive, accessible, and open flow of knowledge transfer. 

Vote, Crowd, Conference, Group, Convention, Audience

Difference between on-chain vs. off-chain governance

Overall, blockchain, or technical governance processes can be divided into two main categories on-chain and off-chain governance processes. On-chain governance processes may also be referred to as processes that are partially or fully automated by code. In contrast, off-chain governance processes are the formal and informal procedures that lead to governance decisions. 

On-chain governance may be implemented on blockchains in form of coin voting. Resulting, every user of the system, who is in possession of coins, may be able to vote. The system can restrict the user in various ways; for instance, by placing restrictions on the number of coins that can be placed, e.g. one coin = one vote, by limiting the time duration per individual vote, by only allowing users (nodes) with certain characteristics to vote, etc. The main benefit of on-chain voting mechanisms is that the system can gather clear sentiment of its users. However, some of the problems are that coin holders are not necessarily the stakeholders in the system, and not all stakeholders hold coins. Additionally, various implementations allow users who hold more coins than other users to have a higher stake in the decision making process. Once a decision is reached, it is difficult to assign an authority to act upon the outcome of a governance process in a transparent and reliable manner.

In comparison, off-chain governance takes governance processes into account that do not depend on automated mechanisms on the blockchain via smart contracts. Arguably, stakeholders should not have to overcome barriers to be able to participate in governance processes. This makes off-chain governance processes more accessible and inclusive to various stakeholder groups. On the downside, off-chain governance processes are difficult to register in the network. Thus, many informal processes may not be recorded nor responded to. Formal governance processes may refer to the decision making processes that are recorded and shared either in written or verbal format. Stakeholder may learn about those processes and be able to participate. In contrast, informal processes may not follow clear guidelines that allow new stakeholders to participate. Note that informal governance should not be confused with structureless processes. 

Resources to get started with

For more information on what discussions on governance are all about, please refer to the following resources and do your own research (I am highly biased by my own readings).

Note: This glossary will be expanded on over time. 

About Anais Urlichs

Anais has been involved as researcher and technical writer, analysing projects for a crypto VC during 2018. Since 2019, she is conducting her own research on the sociological implications of distributed systems, while finishing her computer science degree and working as front-end developer.

Her previous work include introductory writings on blockchain architecture, analysing distributed governance models and user behaviour, as well as project reviews. For more information, please refer to her website http://anais.urlichs.de 

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