Blockchain Governance: Busting the Myths of Decentralization, Trustlessness and Anonymity
Recently I gave a presentation in Chiang Mai, Thailand on “blockchain governance” and made the argument that there exists an acceptable threshold of centralization, trust and strong identity required to achieve an environment where on-chain governance can exist and thrive. In some circles, especially within Bitcoin, introducing any of these 3 qualities results in a perceived net negative value proposition, which I don’t believe is true.
To find if value actually exists, let’s analyze each individually and build the case for how embracing a certain level of centralization, trust and strong identity can create an effective governance model and increase the overall value of a blockchain-based society. Let the myth busting begin.
Myth #1: Centralization is always bad
How many times have we heard someone preach from the gospel of decentralization and proudly conclude that the more decentralized a system the better. Most times missing that the end goal is not decentralization itself, but the security that comes along with it. For the sake of brevity, let’s focus on the governance aspect rather than the technical benefits.
The idea here is that decision making should be as decentralized as possible to prevent ease of code/policy change. The fear is that with any real level of centralization, updates could be made to the code base and bad actors could, for example, increase the amount of inflation and effectively just re-create the USD financial system. Making sure the blockchain’s code base is nearly impossible to update, the code that protects the community’s historical ledger and record of property rights cannot be hijacked or commandeered.
While effective, simply making your software difficult to update isn’t ideal. The problem is that in Proof of Work, anyone can self-appoint as rulers and decision makers (through buying a lot of hashpower) there’s little option to keep the “bad guys” off of your chain. Preventing this attack vector requires a lack of code flexibility and a level of decentralization that slows down all decision making. If somehow there was a way to identify who was making the decisions, why they have the authority and how to hold them accountable, we could reduce the attack vector and benefit from the efficiencies of centralization via reputation.
Myth #2: Anonymity provides safety
Understably many crypto people are libertarians and ancaps with a healthy distrust of government and the banking cartel. Taxation is theft and keeping private is seen as a way to prevent being robbed. I am very compassionate towards this perspective and it wasn’t until Dan Larimer’s article “Does Freedom Require Radical Transparency or Radical Privacy?” did I begin to challenge my biases. I still believe in the fundamental right to privacy, but this argument speaks specifically to those wishing to be in decision making (political) positions within a blockchain community and the privacy sacrifices therein.
Here’s a simple test to see how you value anonymity. Would you be more or less likely to empty the contents of a dropped wallet if that transaction was recorded on the blockchain under your name? Would you be more inclined to try to find the rightful owner if your identity was associated with the action?
If you answered as I expected, then you believe that strong identity creates a virtuous society.
In the realm of governance, the EOS community made the seemingly risky decision to ask all Block Producer Candidates to offer their real names and shareholder information. Once we know who someone is we can begin to individually and collectively judge their actions to piece together their reputation. Compare this to Proof of Work systems where miners only need the capital and experience to rule via hash power. The decision makers in EOS can be held accountable for their actions and must live by the consequences of bad decisions or unpopular opinions. If blockchain is useful for something besides money, it’s keeping an accurate historical record to judge prior action.
Combine this with the feedback loop of voting, offering a strong identity helps establish yourself competitively and positions you to appeal to people’s natural desire to rally around strong, identifiable leaders (Elon Musk, Steve Jobs, etc). For more evidence, look at how “important” the blue checkmark is on Twitter. People crave authenticity. With strong identity and voting, decision makers can be held accountable for their actions which allows EOS to be more flexible with how its code base can be updated, yet remain secure, making it more adaptable to the demands of the community.
Myth #3: A Trustless society reduces friction
I’ve recently come to the conclusion that all market efficiencies requires a certain level of centralization and trust. I’m thankful for Paul Puey (@paullinator) from Edge Wallet for helping me think through this exercise. A basic example is the trust it takes to buy food from the grocery store. While you could grow, prepare and cook it all yourself it probably won’t be the best use of your time. By allowing someone else to at least grow your food, you are trusting countless centralized parties to ensure its safety and availability. This offers you the benefits of scale and in return you accept and offer a certain level of trust.
Since we have now identified why centralization and strong identity are beneficial, we can begin to build trust with our fellow community members. Relating it to governance, we have seen several voting proxy teams who are very diligent in their Block Producer research and rating systems (shameless plug for ‘freedomproxy’).
Once someone is able to prove themselves over time, the associated trust and integrity allows us further efficiencies to delegate our decision making which frees up our personal time. Not everyone needs (or wants) to spend countless hours doing the diligence it takes to build trust with countless block producers and decision makers. Now we have a feedback loop of Block Producers having to prove themselves to normal token holders, but also specialized proxy voting teams who pay attention to literally every small detail. The proxies also must stay transparent and consistent in their actions and stances in order to build trust and attract their community.
The marketplace rewards honesty. Trust is difficult to earn and easy to lose.
So where does this leave us?
Protecting our community’s ledger of truth is so incredibly important, but we don’t need to make our code base as inflexible as possible to prevent bad actors. By allowing a level of trust to be built, resting on top of an acceptable levels of centralization and strong identity, we can benefit from governance efficiencies and decision making systems that other blockchain communities simply haven’t figured out yet. During my presentation, I was a bit taken back by the overall lack of interest and assumed value proposition from much of the audience and nobody seemed to really care about discussing governance. Perhaps it’s because they aren’t afforded the time spent to understand it since it remains difficult to use their blockchains due to a lack of technical scaling solutions, but I’m not sure.
Within EOS, we are very lucky to have a blockchain that has already achieved a level of scalability so that we can focus on other fundamental aspects such as dispute resolution and governance. We are recreating society here, friends. We need to solve a bunch of problems that governments around the world have monopolized for too long. By staying positive and keeping our focus on market based, competitive solutions we will over time find the best ways to both establish a rule of law and how best to enforce it. This will eventually build a virtuous and honest society which will attract the talent and capital necessary to build an amazing culture and community.