One of the biggest questions around blockchain systems over the past few years has been the viability of on-chain structures of self-governance. Various people in the industry, including Vitalik Buterin, have devoted significant time to analyzing the pros and cons of on-chain governance.
There are those that think that on-chain governance is not just the future of governance for all blockchain projects, but the future model for all democratic institutions. And then there are those that think it is fundamentally flawed and not something that can be relied on to safeguard democratic principles in its current form.
With all the controversy surrounding the Iowa caucus, we thought it would be fitting to revisit this debate and look at on-chain governance as it stands now. To do this we reached out to industry insider and CEO of Changelly, Eric Benz.
Does On-Chain Democracy Work?
To start things off we asked Benz how he feels about on-chain democracy and whether or not it can work as a means of shared decision making. Benz is very bullish on on-chain democracy and believes that it has the potential to move beyond blockchain/crypto-specific projects into more traditional and global functionality. He said: “When we look at on-chain democracy we can see just how revolutionary of a concept this is and how it’s being put to the test. With many different communities being established through various different token projects globally, it’s becoming apparent that this really is only the beginning. I personally feel that on-chain democracy is here to stay and I am a major proponent of it, to say the least. This has the ability to transform our entire political system as we know it and redefine what democracy actually stands for.”
There is a catch, however, according to people like Vitalik Buterin. Buterin believes that blockchain voting is overrated as a means of governance. In his view, the notion that on-chain systems of governance are superior alternatives to what has been called “informal governance,” ie, the decision making protocols in place with Bitcoin, Bitcoin Cash, Ethereum and others, is off base.
Others have taken issue with the “one token – one vote principle” saying that it tends to evolve into plutocracies, where small groups of the wealthiest individuals on a chain have access to power that they then can exploit to further their personal profits.
Benz thinks that each on-chain governance system has to be looked at and judged on its own merits. He explained: “When looking at on-chain democracies we have to separate different types of beliefs (code). The code defines the rules of a blockchain and the type of democracy practiced on it. There are so many examples out there now of different types of blockchain communities all with different kinds of objectives and principles. Personally, I’m not a big believer in blockchain projects that practice ‘one token’ as this really goes against what blockchain is all about. The more mature the technology becomes and the more people who begin to utilize the blockchain and crypto assets, the less we will see of personal exploitation and the more standardization will emerge.”
Protocol-Level vs Application-Level Governance
We then moved on to discuss the difference between protocol-level and application-level governance. Benz is a proponent of protocol-level governance, saying: “The debate between protocol-level and application-level governance has been going on for some time now. When looking at both, I personally feel that protocol-level governance is by far the most equitable and effective. Protocols can be understood as the underlying infrastructure on which applications are built, and profit from any growth in the ecosystem. A blockchain protocol cannot be owned by anyone, so in essence, it does not matter how many tokens someone has, they cannot control its protocol and production. The blockchain protocol is run by a number of computers around the world, distributed, and they are rewarded for the operations they perform and for processing cryptocurrency.”
One of the issues of contention concerning on-chain governance is whether they are susceptible to concerted efforts by institutional investors looking to increase their influence in a project and aggregate tokens. Benz acknowledged that not only is this a possibility, but it has also happened many times in the past. Especially in the early stages of a project, groups of investors or the disproportionately wealthy are capable of finessing their way into large scale control of a project. However, according to Benz, as practiced in the industry become more standardized, this kind of takeover “is definitely becoming more difficult, and once the technology involved is less nascent and we have a better grasp on how to tap into its full potential, I feel that on-chain governance will play a very important role in the ever-evolving ecosystem.”
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