A simple framework to analyze blockchain governance
Recent attention to blockchain governance has encouraged people to think about governance systems in more detail. This article explains the basics of blockchain governance and introduces a simple framework to compare the governance systems of different blockchain projects.
The Basics Blockchain Governance
All blockchain projects are governed in one way or another. When humans make decisions as a collective they have a decision-making process, and that decision-making process is part of a project’s governance system.
There are different ways to analyze governance in the context of blockchains and digital currencies. The article “The Basics of Blockchain Governance” starts from the definition that each project has two forms of governance that occur in different arenas: on-chain and off-chain.
On-chain & off-chain governance
The main difference between these two forms is whether governance is visible on the protocol level or not.
- On-chain governance is about ratifying code and modifying consensus rules. It happens on the protocol level. On-chain governance comes in many different versions, but we can discern three general approaches: fork-based, stake-based, and entity-based governance.
- Off-chain governance is about sharing and discussing ideas, and getting support (funding) to implement ideas (turn them into code). It happens everywhere: on social media, GitHub, during conferences, or over dinner. We can discern four levels of participation: getting in touch, interacting with the community, contributing work, and exercising power.
Formal & informal governance
The attribute that sets one governance system apart from the other is the extent to which it is formalized. Therefore, the second step to understand blockchain governance is to recognize whether it is formal or informal.
- Formal governance consists of clearly defined procedures, is verifiable, and there are equal access barriers to participate.
- Informal governance consists of roughly defined procedures that may be opaque, and access barriers may be inconsistent.
The extent to which governance is formalized may vary greatly, but there are clear indicators to recognize formal governance.
A simple framework
This article introduces the Blockchain Governance Quadrant displayed below as a simple framework to compare different governance systems.
When you can distinguish between off-chain and on-chain governance, and when you can recognize whether governance is formal or not, you will be able to analyze different blockchain projects and collect relevant information:
- Informal off-chain governance: Twitter, Reddit, Github, private chats
- Formal off-chain governance: cleverly designed governance platforms
- Informal on-chain governance: versions of the fork-based approach
- Formal on-chain governance: entity-based or stake-based voting
Utilizing the Blockchain Governance Quadrant
In order demonstrate how this framework can be used to analyze governance systems, this section will zoom in on four different blockchain projects.
Bitcoin: this community is notorious for its aversion against any type of governance. Of course that doesn’t mean there is no governance, it just means it is informal (less visible). Off-chain governance may happen via private chats or at exclusive events. There are plenty of Bitcoin forks, which shows that this project uses fork-based governance.
Ethereum: this community pays close attention to governance. Projects such as Aragon, DAOstack, or Colony build on the Ethereum platform and aim to formalize off-chain governance. It remains to be seen whether these tools and platforms will be adopted by the wider community, but this analysis will give Ethereum the benefit of the doubt. There is the Ethereum Classic fork, which reveals fork-based governance is used for code ratification.
Tezos: this community is heavily focused on formal on-chain governance to amend the Tezos protocol using a unique stake-based approach that allows participants to delegate their vote. However, there is no off-chain governance platform with equal access barriers. Instead, there is a Tezos Foundation that relies on a Council and the Swiss Federal Supervisory Authority to ensure that the Foundation’s assets are used responsibly and PwC Switzerland to audit the Foundation’s finances and operations. Grants are administered by Tocqueville Group and all proposals are evaluated by an advisory committee of qualified community members, although the Council has the final vote.
Decred: this was the first decentralized digital currency to ratify changes to the consensus rules via a stake-based voting system. Besides formal on-chain governance, Decred also developed a formal off-chain governance platform (called Politeia) which allows stakeholders to submit, review, and vote on proposals that may receive funding from the Decred Treasury.
Comparative analysis
With the governance data collected above, it is possible to place the four projects into the Blockchain Governance Quadrant and compare their governance systems.
While it should be noted that this framework does not display the nuances of each governance system, the Blockchain Governance Quadrant provides a simple visualization to compare different blockchain projects.
Conclusion
All blockchain projects are governed, whether their governance systems are visible or veiled. The Blockchain Governance Quadrant was introduced as a simple framework to compile information about governance systems.
- Informal off-chain governance: Twitter, Reddit, Github, private chats
- Formal off-chain governance: cleverly designed governance platforms
- Informal on-chain governance: versions of the fork-based approach
- Formal on-chain governance: entity-based or stake-based voting
The Blockchain Governance Quadrant can also be used to visually compare governance systems of different blockchain projects.
Future research
More research is needed to improve the Blockchain Governance Quadrant. A few examples of possible research: use the framework to analyze even more blockchain projects, adapt it to reflect different levels of formalization (which will allow for more detailed classification), describe its limitations, etc.
