Why Is Blockchain Governance Important And What Are Its Types?

Why Is Blockchain Governance Important And What Are Its Types?

  • A crucial component of blockchain networks’ long-term sustainability, adaptability, and integrity is blockchain governance. 
  • There are five types of blockchain governance systems.
  • The 5 types are on-chain governance, off-chain governance, liquid democracy governance, quadratic voting governance and futarchy governance.

Blockchain governance systems can be roughly divided into several models, each with its own unique features, benefits, and drawbacks. The long-term stability, adaptability, and general success of blockchain initiatives can be greatly influenced by understanding the specifics of these many governance systems.

A Look At Decentralized Decision Making

A crucial component of blockchain networks’ long-term sustainability, adaptability, and integrity is blockchain governance. The policies and processes that direct the creation and management of these networks are known as governance systems. Governance systems frequently play a significant role in characterizing the community supporting the project, in addition to directing the development goals and aligning incentives on-chain. 

What Are The Primary Types Of Blockchain Governance Systems?

  • On-Chain Governance

On-chain governance has the advantage of being transparent and automated, which enables speedy decision-making and execution. It does, however, have some disadvantages. Voting with tokens has the potential to produce plutocratic outcomes, where those with the most tokens and consequently the most voting power control policy. Furthermore, because blockchain technology is irreversible, poorly thought-out or disputed alterations may have long-lasting, possibly negative repercussions on the network.

  • Off-Chain Governance

Decisions are made outside of the blockchain through forums, developer gatherings, and other means of off-chain governance. Manual code modifications are typically required to implement a decision. For instance, Bitcoin’s governance relies on a decentralized collection of contributors, miners, node operators, and users and runs mostly through an off-chain process.

  • Liquid Democracy Governance

By giving token holders two options for voting on proposals affecting the blockchain, the governance model is intended to provide a more flexible and dynamic approach to decision-making in a liquid democracy. Token holders can either cast their votes directly or delegate their voting power to a representative who will cast their votes on their behalf. To ensure that token holders are not forced into their decisions and have the flexibility to respond to new information or changing circumstances, this delegation is not permanent and can be revoked or amended at any time.

  • Quadratic Voting Governance

Participants are given a predetermined number of voting credits, frequently referred to as ‘voice credits,’ which they can distribute among numerous proposals or options in Quadratic Voting (QV), a revolutionary method for democratic decision-making. In contrast to conventional one-person, one-vote systems, QV enables people to express different levels of preference by giving multiple credits to causes that are important to them. 

  • Futarchy governance

A governance paradigm called futarchy uses prediction markets to direct decision-making, especially in complicated systems like blockchain networks. In a Futarchy-based system, anytime a proposal for governance is presented, a prediction market is established for it and any alternatives.