What Is Blockchain Governance and How Does It Keep Crypto Decentralized? – MUO – MakeUseOf

Wondering who makes the decisions about blockchains? Decentralized apps require blockchain governance – here’s what that means.
Part of the appeal of blockchain technology is how these projects spread out decision power to more than a central authority. Because anyone in the world can hop onto a blockchain service, developers have to find a way to keeps transactions, update rollouts, and voting power spread out and fair.
The concepts of how and why these projects create a decentralized authority have recently been defined as blockchain governance.
In plain terms, governance is the management or structure a participant in a system agrees to when entering into that system. Governance is not only the rules that a user has to follow but also the punishments for not following the rules.
Governance tends to fall into two different categories: direct and representative. Direct governance is like a democracy, where users determine decisions and actions with no intermediary. Representative governance systems have users create representatives that submit votes on their behalf instead.
For blockchain systems, governance is mostly how the blockchain ecosystem decides on which improvements to enact. Users of the blockchain ecosystem create proposals, which then receive votes from the rest of the community based on the participation rules created by the blockchain developers. Once the votes are in, the developers then see if the improvement plan succeeds or not.
The main reason why blockchains need governance is the same reason any software or computer system does: they need rules to function.
When developers create code, they are defining the rules that the system uses to produce its outcomes. Without any rules to decide what happens when users enter an input, the system will not work. This limitation is why you can do math in a calculator app on your phone, but can't text message with that app. The calculator app doesn't have the rules programmed to handle texting.
Blockchain systems are no different. For the ecosystem to work, rules have to be created by developers on the blockchain. As the developers create these rules by making code for the blockchain, they set the features and functions of the blockchain. The changes you see between different blockchains represent how those developers plan to solve or improve on other systems that came before them.
However, there's one key feature of a blockchain that other computer systems don't have to worry about: decentralization.
Users of blockchain systems expect there to be some aspect of decentralization, where the users of the system also help determine the fate of the system without being overruled by the creators of the system. So, these users expect there to be some way for them to participate in figuring out what direction the ecosystem will go.
While not all cryptocurrency projects live up to their promises of decentralization, such as Solana, users still expect it when using blockchain services.
With the wide range of cryptocurrency projects out there right now, there are plenty of examples out there to showcase how governance works differently. Because all governance for a blockchain system involves the blockchain itself, there are two ways governance for these projects plays out: on-chain and off-chain.
On-chain governance refers to blockchain governance that takes place on the blockchain. This type of governance involves the voting on and implementation of changes to the blockchain protocol.
These changes are proposed by developers and users of the blockchain ecosystem. Each blockchain has a different place where these proposals are posted. Once posted, participants of the blockchain read these proposals and decide if the proposal is a good choice for an update to the ecosystem or not.
Traditionally, these proposals are called improvement proposals thanks to the popularity of the two largest blockchain ecosystems; Bitcoin and Ethereum. These blockchains use Bitcoin Improvement Proposals (BIPs) and Ethereum Improvement Proposals (EIPs) to vote on changes that allow the blockchain to improve over time.
As mineable cryptocurrencies, Bitcoin and Ethereum users vote on proposals by committing mining power. If the proposal receives enough mining power, the proposal goes through, and the update starts with the next block in the blockchain.
Off-governance refers to governance activities that take place beyond the blockchain ecosystem. This type of governance refers to conversations about the blockchain system in places other than the improvement proposal comment section.
Online forums, social media, and similar applications all have communities that discuss blockchain upgrades and features. While these places do not have any voting power to enact changes, they offer users a place to discuss ideas without committing to the lengthy process an improvement proposal can be for some chains.
Many of the big blockchain projects also host conferences or present speakers to discuss ideas involving the system. These meetings also count as off-chain governance since they also give folks a place to discuss proposals without committing anything to the blockchain.
There is more to blockchain governance than just the improvement protocols. Each part of the blockchain ecosystem has design choices that create choices or options for users to decide how to interact with the system.
For example, many blockchains are open-source, meaning that their code is visible to anyone who wants to go in and check it out. People can choose to fork the project when big decisions cause a divide in the community or if someone gets a new idea.
A forked project uses the code of the previous project to make something new. This form of governance gives users a way to create competition and reject or create major changes to previous projects.
Users also participate in governance when using consensus protocols to verify transactions. These governance protocols give miners and stakers a way to govern which transactions and protocol upgrades go through.
Finally, many crypto-based apps like decentralized cryptocurrency exchanges have governance tokens. These tokens give the app users a way to vote in protocol upgrades just like blockchain users, but the upgrade only applies to the application. Some governance tokens also have financial perks tied to them, but overall give users a way to decide what direction to take the application.
Regardless of which kind of governance you look at, blockchain governance looks to make the blockchain and related applications decentralized. Anyone can buy into a cryptocurrency or governance token and start voting on proposals, meaning anyone can have a voice in how their favorite projects develop.
Zachary Reichel is a Staff Writer for MakeUseOf. Since 2020, he has tackled writing as a full-time venture, focusing on computer hardware, system design, and cryptocurrency topics.
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