Governance in decentralized systems

Having that Web3 is an industry, created, and introduced to solve the core problems of Web2 - censorship. It poses as a derivative of certain elements wich was found in the traditional system. Dating back to time where communication was a hassle just like in Africa where town criers where used to disseminate information, before the evolution into phones and mobile gadgets to enhance communication. Communication being a vital part for humans was kept while developments were made to facilitate this.

\ Same in Africa or other parts of the world where storinfg/saving of money was important, humans kept their money either under pillows or buried, but with the introdution of banking system, humans now could create banks where storing and saving of money was made at ease. In this scenario storing/saving of money of money was important.

\ Despite the introduction of the banking system, set of rules were kept which users should abide by such as, having a credit score before borrowing a specific amount of money or how collateral interest works. A defined set of bodies was introduced in place as a governing body to set in place to groom banking entities to run as a system. Under fiscal policies, commercial banks still answer to central banks to supplement their own needs. Commercial banks having to answer to central banks therefore states that a higher governing body has been put in place to making the entire financial banking policy run as a system.

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Why a governing system?

Despite the greater good and the betterment which entities introduces to improve the lives of its users, it is kept in hindsight that these users are humans and hence human behaviours can be erratic and not quantifiable rules have to be put in place, but before these rules can be put in place, a governing body must be set to define these rules which the entire entities has to work with.

\ Take for instance a new hometown with new innovations such as buildings, street lights, road rennovations,etc. When new residents come in, the community lead or the state will give certain instructions which humans should follow. A simple one can be, after eating disposing of canned and wrapped foods should be kept in the basket never on the floor. These rules are set in to shape the behaviour of humans as humans will never follow rules and as well humans can be two-faced, following a certain rule today and tommorow a deviance in action occurs. Although there isn’t a certainty that the hometown residents will keep to the rules, so punishments are introduced to keep these humans in check. Why these rules are kept in check is to be able to groom the little hometown to run as a system - where residents knows what to do at a certain time and what not to do , and with defined rules a social contract is signed by the residents and the higher community body.

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If a governing system is established in Web3 doesn’t that make it centralized?

A mental demonstration is necessary to be given at first for the full understanding of where governance comes in. Evolution began from Web1 - where internet wasn’t in much adoption, to Web2 - where internet became adopted and user’s data became monetizable and hence keeping users at risk through the trading of data, Web3 came in to curb decentralization, security of assets throught a primary concept known as blockchain. When a blockchain is under design, consensus mechanism must be put into deep consideration which curtails how how the chain will be secured and what means is agreeable by the validators to be able to verify a transaction, and through this a valid transaction can be known.

\ Different consensus mechainisms inlclude such as: Proof of Stake, Proof of Burn, Proof of play, Byzantine Fault tolerant (BFTs) etc. Every blockchain runs a specific consensus mechanism. Without the introduction of a consensus, securing of a blockchain remains impossible, verifying transactions becomes impossible as well.

\ The uniqueness of every blockchain can be in its consensus mechanism. Its part of what makes Ethereum different from Bitcoin, what makes Berachain different from EOS, and a list of others you might want to compare. Before a consensus is agreed upon, a body has to vote, this voting introduces how decision-making can be made. Who qualifies to make these decisions doesn’t remain constant unlike in traditional system where a committee or a board of governors will always be the one to make. A participants may be able to be part of the decision process and in the long run not be part of the process (more of this will be explained in this article).

\ Asides determining the consensus, there are other cases where a decision process has to be made through a governance system. Every blockchain has its own system of mechanism of governance and hence not all blockchain answers to a higher blockchain unlike commercial and central banks relationships where commercial banks answers to the central banks.

\ Irrespective of either of the uniqueness of every blockchain’s specific method of governance, two general principles of governance system must be maintained:

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1. Algorithmic Governance
2. Social Governance.

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Algorithmic Governance

In governmental institutions, a code is always defined to which the individuals must follow. Hence the saying: “The code is the law”. This applies same in the concept of blockchain where the protocols has work flows, has a pattern to achieve consensus and as well has a penalty for not following the rules of the consensus. This code unlike in a community where a “code of conduct” is kept to which the community members should follow, in blockchain systems a different type of code is introduced which is regarded as “Smart Contracts”. These are human-readable code but are pre_defined codes written to enable certain actions when conditions are met.

\ In contrast to community codes, these codes are social contracts which will need a third party to ensure that if one side doesn’t meet to the initially set rules, the third party bears a witness and passes a penalty. In blockchain, the smart contracts is a both wing watcher and works on automations such that when for instance a node is faulty, slashing of rewards penalty can be passed to these types of nodes. There is a methodolody specific to each blockchain, it could be as a reason of VM (virtual machine) or even how transactions are processed but these smart contracts set to work in a pre-defined way can be subject to change in the long run as a result of new possible innovation, insufficiency of the existing design, and other factors. Builders and creatives may need to try out new things to increase user experience.

\ Here social governance comes in:

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Social Governance

This is specific to every protocol/network because reasons can change, that objectives can be tweaked to sustain a blockchain/protocol every network introduces a social layer of governance to be able to change the algorithmic governance of the chain. These can not be changed by everyone as there are specific agents/participants who can either oppose a change or propose a change.

\ The relevance of social governance is much more practical when it comes to analyzing the case of when account abstraction was introduced into Ethereum and when Bitcoin witnessed a hard fork to Bitcoin Cash. For the case of account abstraction, Ethereum makes use of response comments to which developers can make requests to a specific change they’ll love to see implemented. Different Ethereum improvement proposals (EIPs) were stated such as EIP-86, EIP-208, EIP-2938, and EIP-4337. All these improvement proposals were introduced but EIP-4337 ended up being approved implementation unlike EIP-2938 which suggested a change in the protocol’s layer, EIP-4337 proposed the same concept without a need to change the protocol’s layer. During these ideation phase, comments of GitHub issues were mostly used and this can be regarded as not a principle but a form of governance.

\ For the Bitcoin hard fork, block data storage has always been a limitation to Bitcoin’s composability alongside its non-turing contracts. At some point, some set of developers proposed a way to increase block size limit while others proposed that an increment could be done without protocol change (which basically required all nodes to change/upgrade their software). The first group which proposed an increment to the protocol change forked Bitcoin into Bitcoin Cash and the other group, introduced SegWit. These proposals were made through Github issues and comments as well.

\ A more diplomatic way has been introduced such as Decentralized Autonomous Organizations (DAOs) or governance forums where a quorum is introduced that before certain changes can be made a certain quota must be reached before changes can be carried out.

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Understanding DAOs

The term DAO comes from the initial term; DAC - Decentralized Autonomous Corporation. Which was a system of government in the traditional system first introduced when individuals started with buying of stocks, being shareholders, and entitled to profits in the organization. The concept of Decentralized autonomous corporations was introduced as Decentralized Autonomous Organizations by Vitalik Buterin. The initial objective of DAOs was to create a forum where users can vote and make decisions but on a deeper level analyzing the denotations of the words: Decentralized, Autonomous, and Organizations.

\ These organizations start as a group chat could be telegram or Discord with a gated community token that users will need to own before being able to join and be part of the decision-making process. But taking a deeper look at the word “autonomous” it doesn’t give its own self sufficiency as these organization do not run on its own but are just censorship-resistant and free.

\ Examples of DAOs include: FingerPrints and NounsDAO. In essence, these DAOs serve as a governance forum to make decisions on communities, within an organization, or a project in an ecosystem. Its also crucial to understand that decision making forums may have gated access or certain agents responsible to take decisions.

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