Blockchain presents an opportunity to address global financial system and governance issues, especially with the recent increase in the popularity of crypto assets. However, blockchains are not infinite. And the capacity of the platforms they run on will eventually limit the rate at which new transactions are added, which means no new transactions can be added without a hard fork. It is evident that blockchains must find a way to scale and accommodate more transactions per second, and that requires on-chain governance.
It is becoming increasingly clear that on-chain governance is crucial to the success of blockchain technology. Blockchain technology today is still in its infancy, yet the blockchain ecosystem is growing exponentially. With the current market cap of over 800 million USD, the blockchain space is certainly on the rise and will likely continue climbing in the foreseeable future.
On-chain governance is usually the result of an entity’s desire to spur a specific development within the protocol’s codebase. It allows for the community to tweak the protocol’s core rules, such as by voting on and endorsing new hard forks. On-chain governance is a core component of a cryptocurrency’s success, but it can also come with a significant cost: a lack of participation from the community.The decentralized features that make the blockchain architecture unique may also be its Achilles’ heel, pointing to the importance of integrating network governance into the blockchain to foster a more inclusive and democratic consensus to modernize the network.
Transforming governance – The key to unlocking the innovation potential of decentralisation
There are many heated debates about blockchain, including how it should be managed, consensus mechanisms, making changes or upgrading the system. These conflicts have often pitted online communities against each other, creating divisions that have led to violent rifts. Despite the success of these consensus systems, as evidenced by the growth in transactions and value, the future of Bitcoin and Ethereum can be questioned. The term consensus refers to everything that is built into the code of the two largest networks, for example. B. Value transfer, miner compensation, smart contract transactions, and other core network functions. Unfortunately, this means that network consensus is not part of solving bigger problems or making even minor updates. This parallel governance process often takes place exclusively outside the channels and in a highly politicised manner. One only has to look at the fallout from the Ethereum Classic fiasco to see this. Or think about how long it took Ethereum to change its consensus mechanism from proof-of-work to proof-of-stake. Performing network upgrades in this way is complex, time consuming and not dependent on network approval. Consensus can be seen as a parallel economic system in which participants from around the world can operate within the same economic framework, without legal oversight or geographical restrictions. In the absence of a link between governance and consensus, any serious attempt at modernization could theoretically take place without the consent or blessing of the community. Fortunately, other networks clearly demonstrate that it is possible and effective to manage within a network while adapting to a constantly changing digital environment.
Balance objectives by promoting more participatory management within the chain
Looking at the extent of the problem from an Ethereum perspective, the Ethereum Classic hard fork is the result of a major disagreement over whether the code is legal or can be broken to protect the community. The two networks are currently interoperable through network updates reflected by Ethereum Classic. However, these disagreements split the community in two, as the original Ethereum structure did not include an on-chain management mechanism to facilitate this dialogue. Solidarity will be key to blockchain’s survival, and disrupting it can lead to unnecessary conflict and distraction. Networks like Tezos and Polkadot have responded to these events with a much more community-oriented approach. Network communities can vote on proposals and updates using an on-network governance model rather than the more centralized off-network governance. This not only increases overall participation, but gives everyone involved a chance to get involved in the game. The success of these measures is clear: Tezos can update itself just as easily as a computer or phone regularly installs software updates. In the past two years alone, Tezos has completed several major upgrades, each adding value to the overall network, evolving the infrastructure and laying the groundwork for future upgrades. By comparison, bitcoin needed four hard forks to make small changes. A simpler approach to governance within the network makes other competing networks, such as Polkadot, much more flexible and adaptable to changes as they occur, not to mention increasing the overall democratization of blockchain through decentralized control over the future of the network. If blockchain is to truly challenge the status quo, the governance of the network must reflect this idea by eliminating the role of gatekeepers and avoiding politics that divide communities. By combining consensus, governance and protocol into one package, it is possible to avoid these divisive issues while strengthening the prospects and longevity of these systems. Flexibility in chain management design means the ability to respond to external technological changes that are difficult to accept in other, more rigid architectures. While code may be the law in the blockchain universe, it still consists of a network of people, and governance must reflect this reality. Do you think Bitcoin and Ethereum networks will follow the example of Tezos and Polkadot to develop on-chain management? Let us know your comments in the section below. Photo credit: Shutterstock, Pixabay, Wiki Commons, LSE Blogs Denial: This article is for information only. It is not a direct offer or invitation to buy or sell, nor is it a recommendation or endorsement of any goods, services or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author shall be liable, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services referred to in this article.There aren’t many things more important to the success of the blockchain movement than the public’s perception of it. There is a lot of work that needs to be done to educate the general public about what blockchains are and how they work. However, many people still don’t understand that on-chain governance is a vital piece of the puzzle.. Read more about bitcoin insights and let us know what you think.
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