The Value of Decentralized Governance
Many Decred newcomers ask the same questions. Why Decred? Why decentralized governance? What benefits does Decred have compared to other cryptocurrencies?
The Decred Digest - Jul 7, 2017
“The many, of whom none may be individually excellent, nevertheless can, when joined together, be better than those [the excellent few]” — Aristole
Many Decred newcomers ask the same questions. Why Decred? Why decentralized governance? What benefits does Decred have compared to other cryptocurrencies? What’s so important about decentralized governance? This article explains a few of the reasons why Decred’s decentralized governance system is so valuable.
In the last few years it could be argued that the greatest threats to the two most valuable blockchain networks (by market cap) were entirely down to the absence of decentralized governance. Last year the Ethereum blockchain forked into two, because there was no real governance system in place to enable the community to agree on how deal with the DAO hack. Now Bitcoin is going down the same road. There is no end in sight to the Bitcoin civil war, purely because there is no decentralized governance system in place to allow the community to make a collective decision on the best way forward to scale the network. As a consequence, a split in opinion now looks like it might result in a split in the Bitcoin network too. No one really knows for sure what will happen when SegWit2x or BIP 148 is implemented in the coming weeks. However, it is possible that the consequences of these actions may jeopardize the security, stability and value of the network.
A recent report by the World Economic Forum highlighted a number of blockchain governance challenges. It suggested that if the blockchain revolution is going to reach its full potential, an effective governance solution is needed. The report stated that “we need to figure out new decentralized governance systems that can be easily deployed on top of these decentralized infrastructures”. It seems decentralized governance is emerging as the most important component of a blockchain network.
What are the main benefits of blockchain technology that make it so valuable?
Blockchain technology is revolutionary because it disintermediates the storage and transmission of value. It enables two parties to privately make an exchange without the oversight of an intermediary. Furthermore, because blockchains networks are decentralized, they have no central point of failure, which means they are also more secure against malicious attacks and censorship. Therefore in my opinion cryptocurrencies are valuable because they offer the world a secure, decentralized, private and censorship resistant way to store and transmit value, without the reliance on a third party. The more secure a blockchain is, the more valuable. The more private it is, the more valuable. The more decentralized and censorship resistant it is, the more valuable. However, if a blockchain is not built upon the foundations of decentralized governance then I believe it isn’t truly secure, decentralized, or censorship resistant. In which case, it is also less valuable.
Decentralized governance prevents centralized decision-making and censorship
The first, and most obvious issue with centralized decision-making, particularly in a decentralized system, is that decisions made by central authorities may not be in the best interests of the wider network and users. In contrast, centralized decisions may be self-serving. If anything, the current Bitcoin civil war shows that the miners hold a large amount of power in the network. It’s evident that some miners are reluctant to implement second layer scalability solutions due to fears they will reduce the amount of fees they earn from on-chain transactions. This decision does not serve the users. It serves the pockets of the mining companies. Therefore, in effect, this decision has excluded many users in developing or poorer countries from using Bitcoin. Users who earn less than $1 a day simply cannot afford to pay a $5 transaction fee to make a payment. This is disappointing, especially since these are the people that need blockchain technology the most. In my opinion this action is no different from your bank putting up the cost of a money transfer fee.
Another problem that comes with centralized decision-making is censorship. Blockchains need to be able to keep up with change, meeting new and unforeseen user demand. Therefore, they need the capability to adapt, evolve and progress over time. Unless there is a fair and effective decentralized governance system in place that enables the community to reach a majority agreement on changes that effect the network, there will always be a faction of people who have their opinion censored by an opposing group or centralized authority, who in turn end up enforcing their opinion on the entire network. As we have seen in the past with Ethereum and currently with Bitcoin, the consequence of this sort of action can lead to chain splits and infighting. In contrast, Decred’s decentralized governance system devolves the decision making process amongst the entire community, giving all stakeholders a say in the decision making process. Everyone has a voice, and it won’t be censored by a central decision maker.
Decentralized governance utilizes wisdom of the crowd
Although the primary benefit of Decred’s decentralized voting system is giving stakeholders a voice, collective decision-making also has a few additional and perhaps unexpected benefits. There is some evidence to suggest that the aggregated decision of a large group is as good as, and often better than, a decision made by an expert alone. This is often referred to as the ‘wisdom of the crowd’. Historically is has been utilized in the courtroom, where judgement is devolved to a jury. However, more recently blockchain technology is creating new use cases, such as decentralized prediction markets.
I think a simple and easy to understand explanation of how wisdom of the crowd can be utilized effectively is the ‘who wants to be a millionaire’ game show example. Contestants on the show can ‘ask the audience’ what they think the correct answer is. Even though the audience is not made up of experts, on average they select the correct answer 91% of the time. So when Decred stakeholders were asked the yes or no question “change stake difficulty algorithm as defined in DCP0001?”, the wisdom of all the Decred stakeholders who participated in the vote was consulted. In turn this ensured the right decision was made to achieve the best outcome for the Decred network.
Now that Decred’s hard fork voting system is up and running, all future changes that affect the network will essentially utilize wisdom of crowd. This will only bring greater security to the network by ensuring correct decisions are made for consensus changes.
Decentralized governance enhances network security
More often than not, when people talk about how secure a network is they are relating to the networks ability to maintain resilience against a malicious attack, such as denial of service, or a 51% attack. However, the social and political stability of a blockchain network is often overlooked.
As mentioned earlier, without a decentralized governance system a divided opinion may result in a divided blockchain, which would consequently impact upon the security and stability of the network. Is SegWit2x safe? What happens if BIP 148 doesn’t get enough support? If the Bitcoin network forks, what chain will the value move to? In any case, these uncertainties are likely to have a negative impact on the value of the Bitcoin network. So in addition to the uncertainties around network stability following these actions, a drop in network value would also make it less costly to launch a 51% attack. Although hypothetical, should a nation state wish to try and bring down a blockchain network, it would make sense for them to launch a social, political and psychological operation to bring down the network value first.
Decred’s decentralized governance system helps prevent all these kind of attacks. Lead developer Dave Collins gave a great explanation of how resilient Decred is against a 51% attack compared to Bitcoin earlier this year. In summary, because all blocks created by proof-of-work (PoW) have to be validated by proof-of-stake (PoS) vote in Decred’s unique hybrid PoW/PoS governance system, you would need approximately 455 million USD to attack Bitcoin, whereas you would need roughly 2.03 billion USD to attack Decred! You can read the detailed version of the explanation here.
Decentralized governance allows unlimited progression and scalability
Most of the present scalability discussion revolves around the technical mechanisms available to increase the network capacity. But as mentioned earlier, this is not the real problem. Scalability solutions already exist. The issue lies with the ability to actually decide upon and implement a scalability solution.
This is where Decred’s decentralized governance system shows its strength again. Bitcoin has been trying to scale the network for almost 3 years. In comparison, Decred voted to integrate the Lightning Network in less than a month.
Decred’s governance system hands the decision-making process over to stakeholders, allowing everyone to collectively agree on which new enhancements to bring to the network via the on-chain hard fork voting system. Once the public proposal system is implemented in the coming months this will only further empower stakeholders. The proposal system will allow users to put forward ideas to be voted on in the next voting agenda. So whether this is bringing the Lightning Network to Decred, deciding to integrate the absolute best privacy-enhancing feature available, or maybe upgrading the networks smart contracts. The opportunities are endless. What’s more, if another cryptocurrency brings something new to the table, stakeholders can simply vote to bring it Decred too.
Whatever the future holds, Decred can adapt and evolve to meet its demands. This is all made possible because Decred is built on the foundations of decentralized governance. Progression will never stop, as long as stakeholders vote for it!
Visit the offical Decred website for further details. Join in with the discussion on Slack, Reddit, or the Decred Forum, and don’t forget to check out the Decred Assembly YouTube show!