Governance is a big topic in the crypto space. It’s important because if you can’t trust the people who govern a blockchain, you can’t trust it.
If you’ve been a trader and have invested in crypto through an BitIQ.app. You must have noticed how quickly you can make or loss money. There are many ways to measure the quality of a crypto asset’s governance model. One way is to determine how well it adapts to change and whether that ability is compatible with the asset’s core mission.
For example, a company that makes software has different concerns than one that provides financial services. So their governance models should reflect that difference. For example, the former will probably focus on ensuring its codebase is always up-to-date, while the latter might focus more on ensuring profitability by any means necessary.
Another critical factor in evaluating a crypto asset’s governance model is its transparency in its decision-making process and what information it makes public about its inner workings. Ideally, this should be easily accessible by everyone, not just those who hold tokens or have been granted access by developers or other privileged users. So everyone knows where they stand when things get tough or even before they get there.
In this post, we’ll look at governance models for five different crypto projects.
1. BITCOIN
Bitcoin gets all the headlines when people talk about cryptocurrencies. Hence, it becomes important to mention its governance model to know why people rely on its blockchain the most.
Bitcoin’s governance model is based on collaboration through open-source software. The process Bitcoin uses to make protocol amendments include the “Request for Comments format”, which was created in 1969 as part of ARPANET.
Mostly, Bitcoiners have become quite rigid for the fact that the protocol does not change unless it absolutely has to. That means unless the vast majority of participants agree to a change, there will be no change. Also, those who wish to change are always free to go their own way.
Upgrades to Bitcoin’s protocol are proposed and implemented via Bitcoin Improvement Proposals (BPIs). BIPs offer a standardised process for contributors to propose new ideas to the protocol, test them, and subject them for peer review,
This process of balances and checks is intended to enable continual innovation in the protocol. At the same time, it makes sure amendments are implemented via collaboration and consensus.
2. ETHEREUM
Everybody is aware of the dominance of Ethereum, the second-largest cryptocurrency after Bitcoin. However, Its governance model stands in contrast to other cryptos, which have a formal governance system.
Ethereum governance happens off-chain with a large number of stakeholders involved in the process. Protocol changes take place through an informal process of social discussion, which if approved, would be implemented in code.
In the case of Ethereum governance, developers submit proposals to a core group, which then decides which updates to implement. Note that this process isn’t linked to how people and applications use the protocol as Ethereum is permissionless.
This allows anyone to participate in on-chain activities from anywhere in the world. There are no restrictions on who can or cannot build an application or send a transaction. However, there is a process to propose changes to the core protocol on top of which these applications run.
Since so many people depend on Ethereum’s stability, there is a very high coordination threshold for core changes to ensure the network stays secure and widely supported by the community.
3. Dash
It uses a decentralised governance model to decide the project’s future. The project has a strong community of developers and users who call themselves “Masternodes” who vote on proposals submitted by contributors to help grow Dash further.
The Dash Foundation is an organisation funded by the Dash network itself, with its primary goal being to support development teams who contribute code to Dash. This allows them to work full-time on their projects while accessing funds from the foundation, ensuring continuous development for years and potentially decades into the future.
4. Tezos
Tezos supports a formal consensus protocol, which allows code to be checked for correctness and security.
The process for deciding and executing upgrades to the Tezos blockchain is on-chain and is directly incorporated into the code of the underlying protocol itself. Simply put, the blockchain software automatically goes through each proposed upgrade and voting procedure without a centralised director.
In addition, it also uses its self-amending ledger mechanism called the “baking process,” which relies on smart contracts to ensure network integrity. In this, “Bakers” are usually developers who can propose protocol upgrades. When the system receives all the upgrade proposals, the registered bakers cast votes.
Once they cast votes, they are in fact voting on behalf of a larger group. Not only that, but the weight of their votes is directly proportional to the number of coins the baker and their node might hold at that time.
On the other hand, non-baker coil holders can move their coins to whichever baker is voting in line with their own preference. This way, all XTZ coin holders participate in the network’s development.
5. Dfinity
Dfinity has the most advanced crypto governance model. The project is building a decentralised cloud computing network, or blockchain platform, with the aim of solving Ethereum’s scalability problem dubbed “Internet Computer”. It uses a network of blockchains, each with its governance, and is built on the idea of proof-of-stake consensus.
Dfinity consensus mechanism is a heavily optimised PoS model which emphasises transaction finality. This mechanism works by implementing a Threshold Relay technique combined with a BLS signature scheme and a notarization method. As such, it addresses many of the problems related to PoS consensus.
Moreover, Dfinity has created a proper trade-off between practical assumptions and theoretical security provability. All these combined result in an innovative and highly unique consensus mechanism design. .
Dfinity is governed by an on-chain governance model whereby users can vote with their tokens on changes to the system, such as upgrades or hard forks, thus deciding how it will use its assets. This process happens through different types of voting mechanisms.
Liquid Democracy allows users to delegate their votes on specific issues or proposals. At the same time, traditional internet voting enables them to cast votes directly without knowing much about what they’re doing. And Proof-of-Stake (PoS) gives each user a stake equal to 1/Nth where N is the number of tokens he owns (e.g., if you own 1000 DFINITY tokens, then your stake would be 1/1000 = 0.1%).
Also Read: Top 10 Blockchain Platforms
Conclusion
There are several crypto projects with attractive governance models out there. All three have their merits, but when it comes down to it, we think Dfinity has the most compelling model. It combines features from other cryptocurrencies with a novel approach to providing better security for transactions and blocks on its network. It does so in a way that no other cryptocurrency can match at this time.
