Governance

What Is Governance?

On-chain governance is a system for managing, implementing changes, and making new policies to cryptocurrency blockchains. In this type of governance, rules for instituting changes are encoded into the blockchain protocol. Developers propose changes through code updates, and each node votes on whether to accept or reject the proposed change.

Deeper Definition

Unlike informal governance systems, which use a combination of offline coordination and online code modifications to effect changes, on-chain governance systems work only online. Changes to a blockchain are proposed through code updates, and developers must submit improvement proposals to make changes to the blockchain.

A core group consisting mostly of developers is responsible for coordinating and achieving consensus between stakeholders. Typically, on-chain governance involves the following stakeholders:

Miners: who operate the nodes, which validate the transactions

Developers: who are responsible for core blockchain algorithms

Users or participants: who use and invest in various cryptocurrencies

Stakeholders in the process are provided economic incentives to participate.

Transactions are recorded on the blockchain network and shared with all participants. Whenever a new transaction is conducted, a new block needs to be added to the blockchain. However, consensus protocols need to be followed for the transaction to be considered valid. Miners, called nodes, verify the data to ensure it’s accurate and that the parameters regarding the transaction have been satisfied.

Once miners have completed their verification process, the results are submitted to the network. After review by other nodes or participants and consensus has been achieved, a new block is added to the network. Miners usually receive compensation for their efforts, called a Proof of Work (PoW) system or process. Implementation of on-chain governance differs between various blockchains.

While there’s on-chain governance, there’s a government that governs how transactions in cryptocurrency will take place; like China, the transaction has been banned, every stakeholder uses a back door to transact.

Governance Example

Jon made a transaction on his blockchain network but was delayed beyond completion’s expected range. He issued a complaint on their page, and a miner checked, and the miner completed the transaction in minutes.