Off-Chain Blockchain Governance

Off-Chain Blockchain Governance – (Video transcript) Hi, everybody, it’s Natu Myers here again. Today, I’m gonna talk about blockchain governance and what that really means because we talk about governance, we say governance without really knowing the core concept, and allow me to take you through what governance is.

So we have the idea of governance, right? Governance refers to all the procedures when it comes to managing the rules in a blockchain project. Part of these rules is called the consensus, and I’m gonna get into this real shortly. So, what you’re gonna find a lot of time is a lot of blockchain projects are run by foundations, as they call ’em, or organizations. The organizations behind numerous blockchain projects are usually responsible for determining, like there’s a board, there’s a board of directors and it’s an organization, right? The people who can participate in the organization make the rules about the blockchain itself. Now, let’s say we have, a lot of projects are like this, Nano, VeChain, NEO, et cetera.

Off-Chain Blockchain Governance – VeChain

Let’s say we look at VeChain, for example. Governance relates to the rules, updates, and versioning. So typically, in a foundation, you’re gonna have the people who are responsible for the project and a lot of foundations that try to have good blockchain governance, and I’m quoting here, they would appoint people to the foundation who hold more cryptocurrency tokens, and I kid you not.

Off-Chain Blockchain Governance: So, let’s say for VeChain and for a lot of projects, if you hold a lot of cryptocurrency tokens, so in VeChain right now, it’s about the equivalence of US$600 or more, then you would be able to join a foundation and actually make decisions on some of the rules, some of the updates, and which updates and which features are gonna be created by the development team of the project, and what’s gonna happen to the versions and things with, like, forks, so different versions of the project. And part of governance is called consensus, and this is very important. So, consensus refers to how computers validate the transactions that happen on the blockchain. So let’s say I send one bitcoin to my friend, the computers, so there are computers called nodes, and they’re responsible for validating the transactions that happen. And how these nodes are introduced to the network and how they’re able to start validating transactions is very important, and that refers to the consensus mechanism. So, let me show you an interesting balance between governance and consensus and how they are intertwined.

So, for VeChain, we have it so that, and let me just erase all this. In certain projects such as VeChain we have it so that in order to join a foundation, so here’s a foundation, foundation is just the organization, you have to hold a lot of tokens, so you have to stake a lot of tokens. So, you stake tokens. So, you stake tokens to join a foundation. When you join the foundation, then you’re able to vote on the rules. These rules will affect the blockchain’s future, such as which kinds of features will happen, what get added to the blockchain, like maybe you want it to be faster, et cetera. In terms of how nodes validate the transactions up on the network, that’s very interesting, because if you stake tokens, so, this is governance. Consensus is when you stake and then you’re able to vote on the nodes that validate the transactions happen on the blockchain. So, staking can have two purposes in one. It can have governance purposes and it can have consensus purposes. As you stake tokens and you vote, then you vote for what nodes validate the transactions. If you hold enough tokens, you can even become a node and validate transactions yourself.

That’s essentially it for VeChain’s example of Off-Chain Blockchain Governance. Then the whole point of a lot of governance systems is to make it so that you can actually be part of a foundation. You can vote for what’s gonna happen in the future and the rules that affect the blockchain network. If you stake tokens, in other words, hold tokens, you can also vote for what nodes are responsible for validating the transactions because some of the nodes can be owned by one organization or another one or another group of people. The nodes form a consensus of the blockchain which then causes the validation of the blockchain.

What’s funny is that a lot of projects that have something like this going on, they have Delegated Proof of Stake or Delegated Byzantine Fault Tolerance, and what does that really mean? That basically means people hold tokens to vote for nodes and there are only a handful of nodes, maybe there are only like seven nodes or something like that, or like 10 nodes. NEO has seven nodes. VeChain only has a few nodes, but it’s going up actually. So, a lot of these projects that allow you to vote have very few nodes in exchange. So, it’s as if they use the governance mechanisms or the governance to give an excuse to give fewer nodes in the projects because you’re voting for nodes rather than becoming a node yourself very easily. That’s the mix. I think it leans towards decentralization side a bit and you’re using the governance side to kind of hide that off, but that’s just my opinion. That’s a quick look at what governance and consensus really mean when it comes to blockchain networks.

This article by Natu Myers was orignally published at Freestartupkits.com: