Decentralization Governance: How On-Chain Blockchain Consensus Protocols Work

Blockchain currently has a significant challenge. This is the lack of a decision making procedure and the inability of the technology and network to be governed. In fact, there have been multiple attempts to do this on blockchain since bitcoin was created and started becoming popular.

This is not surprising seeing as even in a decentralized platform, there has to be some form of unbiased process that will help make the process of implementing new changes easy and straightforward. This formal process of effecting the necessary changes on a blockchain platform through voting is called on-chain governance.

With this measure in place, achieving a consensus will be faster, more efficient and straightforward. Once an on-chain governance framework is in place, it will be easier to introduce new changes to the current blockchain protocol and platform and distribute subsidies whenever necessary.

Right now, some blockchain projects are working on this, and with good progress too. They include Dash (DASH), Steemit (STEEM), Bitshares (BTS) and Decred (DCR). We’ll be taking a brief look at all these cryptocurrencies in the various categories and showing you how each is faring, their processes as well as the results they’ve achieved so far.

Consensus Mechanisms

Of the four mentioned blockchain projects, only one isn’t using some variant of the Proof of Stake (PoS) consensus. The PoS consensus varies from the Proof of Work (PoW) consensus, which requires nodes and participants to hurry up and try to solve complex puzzles.

With the PoS consensus mechanism, participants who end up submitting blocks are selected by the blockchain’s algorithms based on the fulfillment of certain requirements. One of these is the volume of crypto available in the wallet of the node.

Nodes with higher amounts of those tokens tend to enjoy higher preference and are rewarded more than those with less. While Proof of Stake consensus mechanism seems pretty cut and dried, there are variants of it that are seeming improvements on it.

These improvements are seen in the form of delegated Proof of Stake (DPoS) that both Steemit and Bitshares are using. With this consensus, users with tokens can assign their votes to other users or nodes who will then vote on behalf of them.

These nodes or users who vote on behalf of those with the actual tokens are known as Witnesses on Steemit and Proxies on Bitshares. This is where the similarities between the two end. Steemit token owners’ voting powers are only limited to their Witnesses, while Bitshares token owners can cast their votes for more than Proxies.

Decred on the other hand, runs on a hybrid consensus mechanism featuring a combination of the pioneer Proof of Work consensus and the latter Proof of Stake. This blockchain project combined the best parts of PoW and PoS in the sense that miners provide the blocks while Decred token users determine the validity of the blocks mined.

Dash on the other hand uses a similar consensus with Decred. The only difference is the consensus mechanisms are influenced by the master nodes. All master nodes are required to own 1,000 DASH tokens. Only after this are they allowed to mine using the Proof of Work consensus.

Voting

When it comes to on-chain governance, voters play the critical role of decision making. Users with tokens are typically voters, but as they graduate to other levels of governance on the blockchain, the power of their votes varies.

For instance, only master nodes can cast their votes on many issues include budget proposals. Steemit token owners on the other hand, can only vote for their Witnesses whose votes will determine if the proposed consensus changes will be approved or not.

And if the Steemit token users change their minds about the witness they recommended, they can always unvote them. This often happens when the token owners aren’t in support of the proposed changes their witnesses backed.

Bitshares token owners have more leeway and voting power as they can influence many changes or processes on the blockchain. Decred token owners however, seem to have the most influence when it comes to voting.

These token owners vote for everything from protocol upgrades to the validity of mined blocks. As a result, they are rewarded with 30 percent of the block and the token’s subsidies.

Block Creation Protocols

Block creation is an essential part of blockchain sustenance. It’s how the ledger gets extended, thus making room for more transactions. Every crypto project has its own block creation protocol.

Decred and Dash for instance get their new blocks created, thanks to the hard work of miners who use the Proof of Work consensus mechanism. Witnesses on Steemit are responsible for new block creation.

Unfortunately, unlike other blockchain projects where anyone can help create the block, only twenty one Witnesses can create blocks on Steemit. As for Bitshares, these entities are called block producers and would have to be voted for to become one.

The good thing is the number of block producers can vary depending on the project being voted for as well as the token owners’ interest in the project.

Upgrading The Blockchain Protocol

Hard forks can and do happen in this industry. This can be either good or bad depending on the fallout and adoption of the technology. In fact, a hard fork can determine if a blockchain project remains relevant or dies off.

All blockchain projects have their unique upgrade protocol. In Decred, their governance process plays a critical role in all future consensus and blockchain alteration. This requires 75 percent of all eligible voters to approve of the proposed changes. Once it’s put to vote, nothing less than that would trigger the execution of the protocol upgrade.

Bitshares’ protocol is slightly different. In its case, token holders would have to first vote to fund the process of the Bitshares Improvement Protocol (BSIP). It’s only after this round that the protocol upgrades can be compiled and deployed on the blockchain.

Steemit on the other hand, doesn’t really allow mere token owners to vote. Only Witnesses can vote to implement a protocol upgrade. And even then, you would need 17 out of the 21 Witnesses to agree to the proposal before it can be rolled out and executed.

While the first three are democratic and self-inclusive, Dash isn’t. The company believes that all protocol upgrades are best left at the behest of technical experts and the management team.

This is not to say the management just does what they want, it’s more like they feel it’s better to get others to handle any critical upgrades. Of course there are instances where there might be need for a vote. A good example of this is their vote for upgrade their block size to 2MB from 1MB in 2016, which was implemented and rolled out on the blockchain.

Incentive, Subsidy And Power

The first thing people need to know is that on-chain governance is no small matter, and often requires thoughtful exploration of the various available angles to a solution. If you want to ensure that a protocol upgrade goes through for instance, how do you get voters and nodes invested? How can you encourage them to vote for that?

You’ll need incentives. How about security after an upgrade? You have to give thoughtful consideration to that as well, seeing as many blockchains are at their most vulnerable during a protocol upgrade, and hackers know this. Also important is just how much power and influence voters ought to have as well as who can participate.

The four blockchain projects considered all these. Decred for instance, rewarded voters with a 30 percent of each newly mined Decred block. Bitshares and Steemit encouraged voters.

Subsidies were deployed and implemented to help provide some “liquidity” for these projects. Decred and Dash keep 10 percent of block rewards for future expenses while Bitshares has a reserve token pool, from where they can liquidate some tokens and use that to pay for BSIPs.

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