Top 5 Blockchain Governance Models for Crypto Assets

Governance is a big topic in the crypto space. That’s important because if you can’t trust the people who govern a blockchain, you can’t trust it.

If you have been a trader and have invested in crypto through an exchange. You must have noticed how quickly you can make or lose money. There are many ways to measure the quality of a cryptoasset’s governance model. One way is to find out how well it adapts to change and whether that ability is compatible with the asset’s core mission.

For example, a company that makes software has different concerns than one that offers financial services. So their governance models should reflect that difference. For example, the former will likely focus on ensuring that the codebase is always up-to-date, while the latter may focus more on ensuring profitability by any means necessary.

Another critical factor in evaluating a cryptoasset’s governance model is its transparency in its decision-making process and what information it discloses about its inner workings. Ideally, this should be easily accessible to everyone, not just those who have tokens or have been granted access by developers or other privileged users. So everyone knows where they stand when the going gets tough or even before they get there.

In this post, we will look at governance models for five different crypto projects.

1. BITCOIN

Bitcoin gets all the headlines when people talk about cryptocurrencies. Therefore, it becomes important to mention the governance model to know why people trust the blockchain the most.

Bitcoin’s governance model is based on collaboration through open source software. The process Bitcoin uses to make protocol changes includes the “Request for Comments format”, which was created in 1969 as part of the ARPANET.

By and large, Bitcoiners have become quite rigid about the fact that the protocol doesn’t change unless it absolutely has to. This means that unless the vast majority of participants agree to a change, there will be no change. Moreover, those who want to change are always free to go their own way.

Upgrades to Bitcoin’s protocol are proposed and implemented via Bitcoin Improvement Proposals (BPIs). BIPs provide a standardized process for contributors to propose new ideas to the protocol, test them and subject them to peer review,

This process of balances and checks is intended to enable continuous innovation in the protocol. At the same time, it ensures that changes are implemented via cooperation and consensus.

Also read: What is Bitcoin Mining and why is it important?

2. ETHEREUM

Everyone is aware of the dominance of Ethereum, the second largest cryptocurrency after Bitcoin. However, the governance model stands in contrast to other cryptos, which have a formal governance system.

Ethereum Governance happens outside the chain with a large number of stakeholders involved in the process. Protocol changes occur through an informal process of social discussion, which, if approved, would be implemented in code.

In terms of Ethereum governance, developers submit proposals to a core group, which then decides which updates to implement. Note that this process is not tied to how people and applications use the protocol, as Ethereum is permissionless.

This allows anyone to participate in chain activities from anywhere in the world. There are no restrictions on who can or cannot build an application or send a transaction. However, there is a process for proposing changes to the core protocol that these applications run on top of.

Since so many people depend on Ethereum’s stability, there is a very high coordination threshold for core changes to ensure that the network remains secure and widely supported by the community.

3. Dash

It uses a decentralized governance model to determine the project’s future. The project has a strong community of developers and users who call themselves “Masternodes” who vote on proposals submitted by contributors to help grow Dash further.

The Dash Foundation is an organization funded by the Dash network itself, with the main goal of supporting development teams that contribute code to Dash. This allows them to work full-time on their projects while accessing funds from the foundation, ensuring continuous development for years and potentially decades into the future.

4. Tezos

Tezos supports a formal consensus protocol, which allows code to be checked for correctness and security.

The process for determining and performing upgrades to the Tezos blockchain is on-chain and is directly incorporated into the code of the underlying protocol itself. Simply put, the blockchain software automatically goes through each proposed upgrade and voting procedure without a centralized director.

In addition, it also uses its self-changing ledger mechanism called the “baking process”, which relies on smart contracts to ensure network integrity. In this, “Bakers” are usually developers who can suggest protocol upgrades. When the system receives all the upgrade proposals, the registered bakers cast votes.

Once they have cast their votes, they are actually voting on behalf of a larger group. Not only that, but the weight of their votes is directly proportional to the number of coins the baker and their node may have at the time.

On the other hand, non-baker spiral holders can move their coins to the baker who votes in line with their own preferences. In this way, all XTZ coin holders participate in the network’s development.

5. Definity

Dfinity has the most advanced crypto governance model. The project is building a decentralized cloud computing network, or blockchain platform, with the aim of solving Ethereum’s scalability problem called the “Internet Computer”. It uses a network of blockchains, each with its own governance, and is built on the idea of ​​proof-of-stake consensus.

The Dfinity consensus mechanism is a highly optimized PoS model that emphasizes transaction completion. This mechanism works by implementing a Threshold Relay technique combined with a BLS signature scheme and a notarization method. As such, it addresses many of the problems associated with PoS consensus.

In addition, Dfinity has created a proper trade-off between practical requirements and theoretical security provability. All these combined result in an innovative and very unique consensus mechanism design. .

Dfinity is governed by an on-chain governance model where users can vote with their tokens on changes to the system, such as upgrades or hard forks, thereby deciding how it will spend its assets. This process takes place through various types of voting mechanisms.

Liquid Democracy allows users to delegate their votes on specific questions or proposals. At the same time, traditional internet voting enables them to cast votes directly without knowing much about what they are doing. And Proof-of-Stake (PoS) gives each user a stake equal to 1/Nth where N is the number of tokens he owns (eg if you own 1000 DFINITY tokens, your stake will be 1/1000 = 0.1% ).

Also read: Top 10 Blockchain Platforms

Conclusion

There are several crypto projects with attractive governance models out there. All three have their merits, but when it comes down to it, we think Dfinity has the most compelling model. It combines features from other cryptocurrencies with a new approach to provide better security for transactions and blocks on the network. It does so in a way that no other cryptocurrency can match at this time.