Why On-Chain Governance Is Critical for Blockchain Growth and Longevity

The decentralized properties that make blockchain architecture unique can also be its Achilles heel, demonstrating the importance of bringing network governance on-chain to promote a more inclusive and democratized consensus on network upgrades.

Governance Transformation Is the Key To Unlocking Decentralization’s Innovative Potential

There are many bitter arguments over blockchains, whether involving how they should be run, the consensus mechanisms, implementing changes, or upgrading the frameworks. These debates have often put network communities at odds, creating schisms that eventually unfolded in hard forks. Despite the success of these consensus systems as evidenced by rising transactions and valuations, Bitcoin and Ethereum’s future could be in doubt.

The term consensus has to do with everything enshrined in code for the two largest networks, like transfers of value, how much miners get paid, smart contract operations, and other basic network-coded functionality. Unfortunately, that means that network consensus is not a part of addressing any severe problems or implementing even the tiniest upgrades. This parallel governance process often occurs exclusively off-chain in a highly politicized manner.

For evidence to support this very point, just look at the aftermath of the Ethereum Classic debacle. Or consider the amount of time it has taken Ethereum to update its consensus mechanism from proof-of-work to proof-of-stake. Implementing any network upgrades in this manner is arduous, time-consuming, and not a function of on-chain consensus.

You can think of consensus as a parallel economic system whereby participants worldwide can operate under the same economic framework without any legal oversight or geographical constraints. Still, without any connection between governance and consensus, attempting any major upgrades can theoretically happen without the community’s consent or blessing.

Fortunately, other networks are capably demonstrating that on-chain governance is possible and also effective when adapting to a constantly changing digital environment.

Balancing Objectives by Promoting More Participatory On-Chain Governance

When evaluating the scope of the problem through the lens of Ethereum, its Ethereum Classic hard fork was over a serious disagreement whether code is law or can be broken to protect the community. At present, both networks are compatible thanks to network upgrades mirrored in Ethereum Classic.

However, the disagreement effectively split the community down the middle because Ethereum’s original structure didn’t provide an on-chain governance mechanism to facilitate this dialogue. Solidarity will be the key to longevity for blockchain, and the breakdown of such can cause unnecessary infighting and distractions.

Networks like Tezos and Polkadot have responded to these events with a much more community-oriented approach. The networks’ communities can vote on proposals and upgrades by employing an on-chain governance model instead of more centralized off-chain governance measures. Besides improving overall participation, it gives every stakeholder skin in the game.

The success of these measures is evident, with Tezos able to upgrade itself just as seamlessly as a computer or phone periodically installs software updates. In the last two years alone, Tezos has undergone multiple major upgrades, each of which has added value to the overall network while developing the infrastructure and setting the stage for future updates.

By comparison, it has taken Bitcoin four hard forks to simply implement minor changes. The more straightforward approach of on-chain governance makes other competing networks like Polkadot much more flexible and adaptive to changes that can unfold, not to mention improving overall blockchain democratization by decentralizing control over a network’s future.

If blockchain truly endeavors to challenge the status quo, network governance should reflect that notion by upending the role of gatekeepers and shunning the politics that have divided communities. By combining consensus, governance, and the protocol in one package, these divisive hard fork events can be avoided outright, all while solidifying the outlook and securing the longevity of these systems.

The flexibility of on-chain governance by design means the ability to respond to external technology changes that other, more rigid architectures will find difficult to adopt. Although code may be law in the blockchain universe, it’s still comprised of a network of humans, and governance should absolutely be a mirror reflection of that reality.