Game Theory Group

The Blockchain Brief

Governance Is A Myth (In 2018)

 Governance Is A Myth - Part I: Bitcoin and Ethereum

The cause célèbre of the month has been the question of blockchain governance. Particularly, the debate over whether decisions should happen on-chain (through some system of purely digital voting or participation) or off-chain (through some form of human-social decision making process).

Today, we're just going to cover my take on the current state of governance for the two most popular blockchains, Bitcoin and Ethereum.

Governance: First, the quick definition of governance in the real world. A governance system is basically the process through which decisions are made. Decisions like what to do in case of a major DAO hack, an increase in block size, a change to an incentive structure (mining rewards for instance) and pretty much every other decision that requires an update or change to the code or ledger of a blockchain.

I hope you can see why governance on a blockchain can be a huge deal - and very contentious.

Quick Reverse: In my startup days, corporate governance took the form of a fairly straightforward Board <> Management process. The management would bring suggestions or major initiatives to the board which would approve or deny those suggestions, and the team would implement the result.

Examples would be things like CEO pay, acquisition of a company, hiring an executive, stock grants, and so forth. Some of these examples would require nothing more than a bored "Yea" and some would elicit heated debate and arguments. Unless a company was in a "completely unraveling" stage, it is pretty damn clear what group of people run the show.

The clients, the partners, the team, and other the stake-holders might be consulted - or they might not be - but in either case they have virtually zero formal control over the decision making process.

Enter Blockchain. The beacon of democratizing finance, the internet and everything in between. Ostensibly, an open blockchain, owned by nobody, should have a governance system that reflects the wishes of its users. But the truth in 2018 could not be further from this reality.

Bitcoin, the blue-chip blockchain brand, has undergone approximately 40 forks. Of those, perhaps a handful, like Bitcoin Gold or BCash, have been able to reach any significant market-cap.

But people keep trying, and they keep trying because there is no reasonable system by which users can enact change. The process for a fork to occur is technically simple. A portion of the community or the developer ecosystem becomes frustrated with the pace of change, or a current feature, and decide they can improve the code. They clone the repo, blitzmarket the change, and pray for believers. Most of the time it fails. Sometimes, with good leadership, it succeeds. But Bitcoin stays the same, only the forks mutate, because the process of changing Bitcoin core code is far more difficult and confusing.

Coinbase co-founder Fred Ehrsam wrote a great post on Bitcoin governance, and how different stakeholders in the system have limited or partial control. He ends with this pertinent quote, "[Bitcoin governance]...results in a self-reinforcing cycle of more power becoming concentrated in a small group of early core developers, slower technological advancement, and conservatism."

I do think that this broader point needs further probing; Bitcoin governance has resulted in a small trickle of small updates over the past year -- and bitter infighting between rival factions both within and outside the ecosystem. I think we've had enough time to question the results of the Bitcoin governance results, if not the system itself.

Ethereum, then, perhaps is the next generation of governance? Not very clear. Listening to Laura Shin speak to Aya Miyaguchi of the Ethereum Foundation was not encouraging, particularly because the title of the podcast was "... on who makes the final call." After an hour of listening: seemingly nobody makes the call - and certainly not the foundation itself.

Further, Laura recently went on stage with senior Ethereum developer Vlad Zamfir. I respect the hell out of the guy, but to me, it seemed like he dodged the governance questions like Neo dodges the evil computers in the Matrix. All we could really get out of him was that there exists a shadowy group who control the GitHub repos (code update process) for Ethereum, and they are in constant political machinations with Ethereum thought leaders in non-descript user forums. This barely makes sense to me, and will make much less sense to regular ETH holders. Notably, Vlad is also very much against on-chain governance, claiming that a decision-making process for changes to a blockchain is a living, breathing, "social" thing, and should remain so for the foreseeable future.

In Part II of this post, I will discuss the newer blockchain governance systems that already exist the wild and those that I am seeing come up in white-papers time and time again.

Welcome to the upside-down!


Boris Revsin