Decentralized Governance

November 21, 2023 - Around 3 mins mins to read

Understanding Decentralized Governance

Decentralized governance, also known as distributed governance, is a collection of voting methods used to make decisions regarding platform technology, strategy, upgrades, and regulations. There are two primary approaches to blockchain governance: on-chain governance and off-chain governance.

On-chain governance is based on blockchain systems that incorporate automated cryptographic algorithms into the network’s computational design and consensus process. It involves stakeholders voting using native currencies to directly modify the blockchain.

On the other hand, off-chain governance refers to the decision-making process that occurs outside of the blockchain, such as through online forums or in-person discussions. Off-chain governance techniques include public debate, suggestions, and collectively agreed-upon updates.

Decentralization, in general, involves transferring power and responsibility for public activities from the central government to subsidiary or quasi-independent government entities and/or the private sector. It is an organizational structure where top management delegates responsibility to lower levels of management.

Decentralized networks and platforms rely on innovative governance systems to ensure the durability and real-world usage of their initiatives without a centralized authority. Blockchain governance traditionally involves making choices on project progression and ongoing upgrades to ensure the smooth functioning of fundamental protocols and the ecosystem.

From a global perspective, the widespread use of blockchain applications allows for a shift away from centralized institutions and the establishment of a new social contract based on consensus. This leads to a more transparent, independent, and creative global society. The new social contract would include decentralized communication and cooperation platforms, as well as decentralized arbitration systems using smart contracts with rules agreed upon by participants.

The roles within decentralized network governance vary depending on the network structure and relationships. This requires an allocation of governance responsibilities, rights, and obligations that considers power dynamics among players. Additionally, as new elements of power interactions emerge in blockchain-based solutions, such as server providers and miners, governance systems should address them.

In decentralized network governance, power is seen as residing in specific and dynamic connections, whereas traditional governance models view power as residing in positions. Depending on the interaction between entities requiring governance, power can be held by individuals, companies, or states.

However, a drawback of decentralized governance is that a public blockchain is inherently volatile and can be forked or abandoned by the community at any time if it loses appeal or profitability. This raises questions about whether a fully decentralized blockchain, like Bitcoin, can be considered a universal ledger, as there is no guarantee of its continued operation or existence in the future. Contracts and government services may become invalid due to obsolescence, lack of interest, or a transition to a different system.