Crypto Governance

Blockchains and smart contracts bypass traditional principal-agent dilemmas of organizations, and radically reduce transaction costs, disrupting the way of how society organizes itself, privately as well as publicly. The vision of Blockchain to create an operating system for trustless trust, by disintermediating and decentralizing with machine consensus, whether on a protocol level, or on the smart contract level. But code can only define and enforce known knowns and known unknowns, but never unknown unknowns. The Blockchain & Governance Working Group meets on a regular basis to identify and discuss aspects of decentralization by machine consensus as well as governance beyond code.

# PROBLEM OF UNKOWN UNKNOWNS

While machine consensus can radically reduce transactions costs and solve certain principal-agent problems, the question of how to deal with unknown unknowns that manifest over time has not yet been resolved. Bitcoin’s block size and SegWit debate, as well as the highly disputed Ethereum hard fork as a result of The DAO attack, are a testament to those questions.

# HOW DECENTRAL IS DECENTRAL?

How decentralized (fault tolerant, attack resistant, collision resistant) can consensus finding in such edge case scenarios that have not been considered in the code really be, if it builds on plutocratic governance rulesets — one token one vote — in a world of extreme wealth inequality? How decentral is decentral if we still have to trust a handful of highly specialized system architects who sufficiently understand the code that needs to be modified? We are working on identifying a power/decentralization gradient to visualize the level of decentralization in a distributed community.

# GOVERNANCE BEYOND CODE

In addition to existing automated consensus rules, we need to explore additional governance structures, to maintain these systems flexible to withstand time and responsive enough to adapt to unforeseen edge cases. This requires some groundwork to identify the parameters of the community which needs to be self-governed since governance for distributed networks is not a one size fits all solution. Depending on the type of community that needs to be governed a different set of governance mechanism, arbitration and checks and balances will be necessary. Future research must turn its attention to a series of important questions around governance beyond code, information dissemination, communication and transparency and, around consensus rules. For example: what are the design parameters of flexible governance structures that incorporate and align interests of stakeholders and are concurrently flexible enough to withstand future shocks? What set of decentralized communication and information tools on top of the Web3 support transparency in the decision-making process and enable decentralized consensus that does not produce hidden gatekeepers? Finally, how can a majority-based consensus system adequately protect and provide for minority interests, in particular where voting influence is weighted in proportion to the number of tokens held?

Crypto Governance

# PROBLEM OF UNKOWN UNKNOWNS

# HOW DECENTRAL IS DECENTRAL?

# GOVERNANCE BEYOND CODE

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