Governance: The Root of All Forks

The Illusion of Governance and Forking in Cryptocurrencies

Photo credits to William Bossen

Decision-making is hard. One may say that it is the art of life. Something you can only learn over time. To sound poetic, we could present ourselves as the collection of decisions we made in the past. And yet, we don’t understand them all too well. Often times it is hard to pinpoint the reason we chose A over B. Something that was a clear choice the year prior is not so clear anymore. There must be an underlying set of arguments that drives our choices, even if unconsciously.

We all have had a discussion about politics at some point. It is surprising how seemingly indifferent people might actually have strong postures. It was through discussing politics online that I had a peek into the mystery of decisions. After months of heated debates with people of wildly different stances, I started to notice a pattern. Topics that started with a generic question were eventually reduced to a simple core disagreement. Once we arrived at said fundamental difference of opinions, we had to either change each other’s view of a core value or agree to disagree.

These differences are difficult to solve. The most common fundamental differences of core values that were the origin of disagreements were 1) personal benefit versus community benefit, 2) whether laws are guidelines or absolute rules, and 3) present value versus future value. Once we arrived at this point, I knew the discussion was over. Each party had revealed the core value that shaped their view on the topic. There was nothing else to say.

At least that is as far as conversations could go. Anything further would move into the realm of emotions, feelings, or tradition. From this point, arguments never seem to go past believing that that was the better option. Perhaps the wall of belief is where our reason ends.


TheDAO

A few years ago, the largest smart contract deployed on Ethereum was exploited via a flaw now called reentrancy. In the end, millions of dollars worth of ETH were withdrawn by the hackers, and the community was faced with the question of either performing a rollback or not. After some days, the hard-fork took place, splitting Ethereum into an original chain, Ethereum Classic, with stolen funds and a new one with returned funds.

When discussing the Ethereum fork, the core value of law being absolute or not is the main divider. The supporters of absolute immutability are on the side of law being absolute: making exceptions to the rules breaks trust and sets precedents. Their counterpart sees law as a guideline that can be ignored in order to serve a higher purpose. One group respects rules in society as a common ground that must be absolutely held, since only then fairness and equality can be ensured. On the other hand, the hard-fork supporters interpret law more loosely and are willing to make an exception to the rule, as long as the exception is the will of the community.


Disagreements within cryptocurrency communities aren’t too different from disagreements about national politics. The community was formed in the first place by people who agreed on a common goal. Unknowingly, a radical leftist and a radical right-winger may agree to share a cab if they’re going to the same place. It is not until each party reveals their core value that cooperation might be off thrown off the table.

In domestic policy, governments make the choices most of the time. Since nations exist in time and limited space, only one outcome is possible. One group will emerge victorious and the other one will have to concede (or lead a rebellion). However, cypherpunks can create parallel outcomes. Even if the vast majority wishes to upgrade the protocol, those who disagree can and will run their own legacy nodes amongst themselves. Governance on cryptocurrencies should lead to chain forking. We can’t “fork” Britain into Brexit and non-Brexit, but we can fork Ethereum into a chain with stolen funds and one with a patch.

We can argue that the best resolution for a conflict of this type would be a joint solution that satisfies the preferences of both groups, much like agreeing to disagree, but still sharing the cab. At least this might be possible when people confront each other face to face, but when talking about cryptocurrencies, we are referring to thousands of anonymous, opinionated decentralists. Minorities that wish to alter the protocol quickly lose support and dissidents flock back to the leading chain.

Does this effectively make forks a placebo for minorities? Bitcoin’s chain and codebase have been forked at least half a thousand times, yet Bitcoin (Core) represents over 50% of the whole crypto market cap. Hundreds of forks have tried to improve the protocol in their own way, but in the end most are defunct blockchains. To some extent this makes the concept of ideological forking a way to let off steam. The statistical losers of the fork try to live up to their own expectations, but realize over time that numbers matter. It is highly likely that people who once disagreed with the post-TheDAO fork now use ETH just because ETH has the network advantage.

A fallacious conclusion to be drawn from the total supporters would be that ETH is better than ETC. The remaining ETC supporters will say it isn’t. Depending on who the reader is, the answer changes. However, when we look at the media and forums, to a newcomer ETH does seem to be better. Why does ETH keep growing compared to ETC?

One-Chain-Fits-All

Those indifferent to the ideological divide will assume that the larger chain is the better one. Described long before today, we are more likely to think that store A is better than store B just by checking which store has the longer cashier line. The larger community transcends ideology to become a brand. As time passes, smaller chains are forgotten, while larger chains become household names. With more newcomers joining the larger community, the network effect grows stronger, and those who were on the edge between ETC and ETH jump over to ETH because even their friends use ETH. Furthermore, Ethereum Classic made the fatal mistake of not keeping the original name: most people believe that ETC is the forked version of Ethereum. All in all, the odds are stacked against Ethereum Classic, not because it is inherently less good, but because there is a flaw in how we use forks.

Despite having hundreds of active or semi-active blockchain projects available, average users have no real reason to go beyond the top 30 most active projects. Beyond Bitcoin, Ethereum, Ripple, and Monero, the rest are different implementations of similar ideas, but with less adoption and more specifics. There is no reason to believe that an end-user will risk their time and money moving beyond the tested standards. Even if the end-users were potential fork-adopters, the risk and network effect makes discovering forks a waste of time. In the end, the flagship cryptos become one-chain-fits-all for store of value, smart contracts, value transfer, and privacy respectively.

The future of forks looks bleak, but it doesn’t have to be the case. In fact, inter-chain operability could significantly reduce the migration from forks to flagships. Inter-chain operability is the equivalent of agreeing to disagree: each chain has its own rules, while still allowing interaction under the specifications of the inter-chain protocol. Using an analogy to countries, it is possible to (try to) send snail mail from nation A to nation B. The sender from nation A has to clear the rules from sending mail, and then nation B screens the mail and chooses to either let it pass or not. If crypto moves into a similar direction, small radical cryptos wouldn’t be completely isolated and the ecosystem would become more fluid as a whole. Inner frictions from major cryptocurrencies would be eased as crypto-citizens who disagree can freely change chains at a much smaller opportunity cost. As time goes on, inter-chain operability and active governance will lead to a richer ecosystem with free-transit. It will also improve growth and reduce internal conflict caused by indirectly forcing people into the one-chain-fits-all model. Whether flagship blockchains are willing to give up their soft monopoly or not is a question for another day.