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Governance Systems Used For Cryptocurrencies

Bitcoin and Ethereum already have systems in place to implement decentralized representation. The core of these systems is Improvement Proposals, suggested by developers and users to enhance the functionality and performance of their respective blockchains.


But Hacker suggests that these proposals alone might not be enough. “Bitcoin clearly has not implemented an effective governance framework yet that would balance user/community voice with some steering on behalf of core developers in times of crisis,” he says.



As proof of his assertion, he refers to the veto mechanism from the Bitcoin core team that prevented the development of a larger block on the crypto’s blockchain for efficient processing of transactions. “Often this (the Improvement Proposal) works via a signaling mechanism that gives voice to miners, but not to ordinary users,” he says. Users, in this instance, are people who own cryptocurrencies, whether through running full nodes or third-party wallets.


Ethereum is ahead of Bitcoin in the governance game. The cryptocurrency has already tested several cryptocurrency-related innovations on its blockchain. For example, voting on the DAO proposal occurred through the implementation of a Carbon voting mechanism, in which each voting node had to make a transaction involving spending a minimal amount of ether (ranging from 0.06 ether to 0.08 ether). However, it recorded low voter participation. In addition to this, it also publishes transcripts of developer calls on its website.


Other Governance Programs


Other cryptocurrencies have also implemented different forms of governance systems. Some are a hybrid of off-chain governance and on-chain systems while others are purely on-chain systems.


For example, Dash’s system combines decision-making about future development through voting on proposals presented by Dash’s core development team by Masternodes (which are responsible for transaction consensus). Dash Core, which consists of senior members from the Dash network, is answerable to Masternodes and is answerable to them. It can also be removed by them.


“In essence, we are owned indirectly by the network and have a fiduciary duty back to them,” says Ryan Taylor, CEO of Dash. Decred, another crypto, implements a somewhat similar structure, but the entire process, voting, and proposals are implemented on the blockchain. The number of votes per stakeholder or user is proportional to their stake of coins.


Such an on-chain system may face problems in a privacy-focused cryptocurrency, such as Monero, where public keys identifying a voter are not easily divulged. Still, the movement of cryptocurrencies toward establishing governance systems is a positive development, says Hacker. “It shows that there is a demand for them (such systems).”

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