Decentralized, Transparent, Blockchain-Based Governance

Everyone in the crypto world has been talking about the “Civil War,” and not the one involving Captain America and Iron Man. No, the civil war they are referring to is the Bitcoin civil war, a rancorous year-long battle for control centered on scalability.

On one side are the Core developers who want to hold the blocksize limit to 1MB, counting on the promised Lightning Network to solve any congestion issues.

On the other side are those found in the Bitcoin Classic camp, who want to increase the blocksize limit to at least 2MB. For the moment, it appears Core has won, with Bitcoin miners overwhelmingly deciding to stick to their implementation of the project.

The spat has brought up some fundamental questions about the nature of a decentralized project such as Bitcoin. In the end, who sets the direction of a decentralized project? Who makes the final decisions on development? In other words, how should a project like this be governed?

The Necessity of Governance

Before looking at governance itself, it is important to first ask if there really is a need for it. For most people, the word “governance” brings to mind something official, perhaps in Washington or Moscow or London or Brussels, attempting to manage the world.

For some, that is a comforting thought. For others, such an image sends a cold shiver down their spine. However, it is pivotal to note governance is not the same as government.

Governance simply means how decisions are made. For example, each person has self-governance: the power to make one’s own choices. Each family also has governance – a way to come to decisions regarding the direction of the family. Every group of people – a baseball team, a hacker club, a small business – has some form of governance, whether it is written down formally, or understood implicitly by its members.

What most cryptocurrency enthusiasts reject is not governance, but involuntary governance, or in other words, decisions made without any input from those impacted by the choices made.

Further, cryptocurrency advocates want to have decentralized governance – one that spreads decision-making power as broadly as possible.

Yet, in practice, cryptocurrencies are actually governed a little differently.

A common model is the “benevolent dictator” model, in which one person, usually the creator of the project, is the final decision maker.

Bitcoin itself was under this model initially, as Satoshi Nakamoto set the direction of the cryptocurrency in its early years. Ethereum is a prime example of that model today.

This model has some advantages, however, “decentralized” it is not. It has a single point-of-failure, and the success or failure of the project depends solely on one individual.

Another model replaces the “benevolent dictator” with a small group of developers. In many ways, this is what Bitcoin has done, since the Core team is currently solely responsible for the direction of the software.

Of course, the team holds this authority only because it is granted to them by the small group of miners who control the vast majority of hashing power on the network.

This model, however, has the same strengths and weaknesses as the “benevolent dictator” model, centralizing control in a small number of hands.

But, perhaps another model, one where governance is baked into blockchain, is the solution. The democratic — truly decentralized approach to governance — is certainly working elsewhere.

Decentralized, Transparent Governance

In the past year, Dash has created an innovative blockchain-based governance model.

It starts with the Masternode network. Masternodes are full nodes powering the network. For their service to the network, they are incentivized with payments from the block reward.

Masternodes require 1,000 Dash as collateral, meaning that Masternode owners are both invested in the network, and also receive regular income.

Unlike Bitcoin miners, who have no real incentive to keep their money in Bitcoin, Masternode owners are incentivized to see the platform succeed. Masternode owners could be developers, marketers, artists, writers, or construction workers, but they have one thing in common: a financial incentive to see the cryptocurrency succeed.

Currently, there are over 3,700 Masternodes on the network, owned by hundreds, perhaps thousands, of Masternode owners. One person can own more than one Masternode, and ownership of a Masternode can be kept private.

This decentralized group of owners, along with being investors and income-receivers, have another critical role in the cryptocurrency. Each Masternode has a vote in the Budget System, which allocates funds for development.

As anyone with even a little business experience will tell you, the one who controls the purse-strings controls the direction of an organization. Through the Budget System, the development team is paid a regular salary. Further, anyone can submit proposals, which will then be put to a vote. These proposals can be for separate development projects, such as mobile apps or point-of-sale systems, or they could be for promotional projects, such as marketing or business development.

How does this work in practice? The first thing to note is that the development team is still in charge of development. They set the short-term direction of the project, updating the code as needed. It would be ludicrous to have the owners of over 3,700 Masternodes making day-to-day coding decisions.

However, because the development team is being paid by the blockchain based on Masternode votes, if development occurs in a direction contrary to Masternode owner desires, the development team funding can be cut, and even redirected to other developers more in keeping with the prevailing vision.

Further, when major changes are contemplated for the project – such as increasing the block size limit – these decisions can be put to a vote of the Masternode owners. This is exactly what happened back in January, when lead developer Evan Duffield proposed increasing the blocksize to 2MB.

This proposal was voted on in the Budget System and received the overwhelming support of Masternode owners within hours. What has split the Bitcoin community for over a year was settled definitively in less than a day.

The  process is not only decentralized, it is transparent. The voting proposals and results are all publicly available on the blockchain. They can be tracked in real-time at dashvotetracker.com, which shows the latest vote totals, as well as the history of each project’s votes.

Any fears of a centralized, closed-door government-structure – as has occurred in Bitcoin – are overcome by Dash’s innovative, democratic system. This speaks to a progressive approach, and one that’s decentralized, transparent, and blockchain-based.