If a man has his eyes bound, you can encourage him as much as you like to stare through the bandage, but he’ll never see anything.
~Franz Kafka, The Castle
The importance of understanding power dynamics in the blockchain space is quite understated. With recent struggles in the Steem community, IOTA community, and even the Ethereum community, it’s becoming abundantly clear that power structures in decentralized (bar IOTA) systems are ill-defined. Power defines how a protocol runs, who can change the rules, and how rules are changed. Sometimes the rules can be implicit via a protocol’s social contract, where these structures are outlined in a particular founding-document. Other times it could be via collective discourse, where rules and structures are changed on the fly in order to benefit a system’s long-term health at the expense of a short-term conflict.
It all starts with understanding ‘power’ as a concept.
What is Power
Power, whether held or exercised, is the ability to extract some form of value from a group or individual being. It doesn’t necessarily have to be insidious, as the group or individual being overpowered may benefit from such a structure. It is typically based on one of the following characteristics:
Physical — Or the means to physically overpower or out-compete the powerless with resources.
Knowledge — Or the exploitation of information asymmetries for some form of gain.
Financial — Or the amount of wealth one has, and the desire to acquire additional wealth.
Emotional — Or the way in which one can be psychologically manipulated or drawn to a cause.
In regard to participants in blockchain systems, power is typically seen through all four characteristics. Physical power comes in the form of electrical and hardware requirements for PoW systems or nodes. Knowledge-based power comes in the form of how well one can understand and change a protocol’s codebase or, tied in with financial power, how well one can understand the markets and how these assets are priced. Lastly, emotional power comes in the form of establishing a social tribe and community around a particular asset.
However, blockchain systems require specific dialectics to operate; the powerless aren’t as powerless as they seem. For example, miners or validators may have plenty of power in a network over those transacting (ordering, fee priority, etc) but they only have power insofar as those transacting continue their activity on the network. Those that can develop the software necessary to run these systems may have control over the rules of a particular network but are also at the mercy of those less technical that are using the network for what it’s meant for.
Power has an initiator, or rather someone defining the rules of play so that power can be enforced. In distributed ledger systems, it initially exists in a form of manuscript or paper that evolves into a social contract. Satoshi was the first to define the operation of power in distributed ledger systems with the creation of Bitcoin. In its current design, Nakamoto consensus dictates that the “majority decision is represented by the longest chain,” or the chain that has the greatest amount of work and hashpower behind it. An honest majority in this power system is defined by the most hashpower agreeing with the structure and rules of the supported chain. An attacker would have to accept diminishing the value of their own sunk costs in order to execute a successful double-spend.
Truly decentralized systems operate within the Foucauldian definition of power in which power isn’t ‘wielded’ per se, but rather is a pervasive thing that simply exists between all participants of a given system. However, power is always in ‘constant flux and negotiation’ — just as in blockchain systems any power structure can be flipped by one of the many existing dialectics. This, in particular, can be seen back from the NO2X movement in 2017 when the miner’s decisionmaking was in-line with the community’s demands to not upgrade Bitcoin blocks to 2MB in size.
Although Satoshi initially designed a particular power structure, it continues to be redefined with each upgrade to the protocol via different social structures. In the case of a hard fork, we still adhere to the defined rules of the chain with the greatest amount of weight — however, a miner’s willingness to agree to such a change is defined by their profitability and trust in who is behind and executing such an upgrade. Satoshi defined power, and over time we continually redefine it within its initial constraints.
Who Has Power and Why?
When dealing with power structures in decentralized systems, the first questions to ask are who has power and what gives them power? In a truly decentralized system, you won’t have one throat to choke, but rather a collective to point to in the case of any benefits or consequences rooted in decentralized decisionmaking. Power can take the form of an individual or organization (such as a core-developer, or group distributing funding for particular projects), or an “object,” with a subjective operator (full node run by a human, or assets and how they’re deployed).
In the case of an object, it’s a two-tiered power structure where hardware requirements or assets are coupled with subjective leanings. Hardware isn’t autonomous — it is typically bought or traded for by those with the means to do so. It is unfair to say that hardware is “unbiased” because it is the role of the operator to make decisions on behalf of the hardware.
In decentralized systems, we can break down power-granting into three unique categories, which can overlap to create very distinct structures:
Technology
Does one have the means to participate in the system as intended with the right hardware?
Can one individually effect change in a protocol without the assistance of others?
Can one develop applications for said protocol?
This form of power is both gained through will and resources.
In the case of technology, power-granting comes in the form of being able to efficiently operate different forms of hardware, whether it be a node or ASIC, and also the ability to produce code. The ability to produce code allows an individual to shape protocol decisions and implementations based on their own modeling, or create applications that may introduce additional variables to a decentralized system. An example of this in the Ethereum ecosystem could be those that contribute to the EIP process or develop very protocol embedded systems such as MakerDAO.
For example, what gives the developers and stewards of MakerDAO so much power is the fact that a majority of existing systems have harnessed the composability of Ethereum in order to produce dependent applications. If MakerDAO were to experience issues, that isn’t good for the base protocol as a whole, considering the amount of value locked and individuals depending on its security.
Financial
Does one have the ability to personally affect markets?
Can one persuade others to enact changes on their behalf via a financial reward?
Can one influence a protocol’s governance via capital injection?
This form of power is gained through resources alone.
In the case of finance, power-granting comes with the ability to acquire a particular resource and wield power based on that ability. In a proof-of-work chain, this comes from the ability to buy hashpower, or in proof-of-stake chains, this is the ability to purchase the asset and validate transactions. Although the game theoretics of compromising a decentralized system leans against simply buying enough power for a takeover, the possibility is still there. However, there are more subversive ways that this form of power can be exercised after being ‘granted.’
Coercion plays a large role in financial power, largely in the form of protocol decisionmaking. For example, someone with enough capital can wield a heavy amount of decision-power in governance decisions, or even bribe smaller pockets of power in other forms (technological, social) to act on behalf of the individual or group. Also, capital can be injected into thriving protocols and platforms built on decentralized systems to have decision-making power as well (e.g. MakerDAO and a16z).
Social
Does one have a ‘natural presence’ in a community and act as a guide for protocol upgrades?
Can one influence others to act on their behalf simply through persuasion?
This form of power is gained through will alone.
In the case of social power, this is an influencer that has the social ability to wield power via proxy. Does someone have a grand enough social presence to influence someone with financial power or technological power to enact some form of change? Typically, social power is coupled with forms of technological power (in the case of core developers, application developers, etc), or with forms of financial power (in the case of a VC or fund). Social power is the least explicit form of power, as it typically isn’t the subject enacting changes but rather effecting change via proxy.
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Combining these forms of power only increases their efficacy. Power concentration can be dangerous or safe depending on how a decentralized system is meant to operate (via its social contract). Do the rules call for one-node one-vote? Or does it call for an elected group of block producers that make decisions on behalf of their constituents.
How is Power Exercised?
Does it even need to be?
In a centralized system, power would only need to be exercised by a single entity. However, considering the fact that decentralized systems are adversarial by nature, power must constantly be exercised by all participants. In order for these decentralized systems to run, there must be at least one power struggle: resources based on protocol rules. This is the struggle to obtain block rewards in both work-based and stake-based systems. All contention then stems from this base competition.
The adjacent power-struggle to block rewards comes from protocol monetary policy. How will a system reward competitors, and at what interval? This has been a widely debated subject across chains with those that will likely remain disinflationary (such as Bitcoin), or those with a more flexible monetary policy (such as Ethereum). Considering that the system’s asset is the sole fuel for the system’s existence, this becomes the most important power struggle of them all. Using the above types of power, we can determine that they will be used in different ways to enact or prevent changes to the monetary policy of a decentralized system.
Above the base-struggle are protocol changes that may not have an impact on monetary policy, but rather the chain’s capacity and efficiency. Although these types of struggles have the possibility of impacting price, they may not impact the distribution of a block reward. Higher than that exist app-specific power struggles that may have an impact in the ecosystem, but are highly narrow to a distinct platform or protocol built on this decentralized system. An example, in this case, could be MakerDAO governance decisions.
However adversarial decentralized systems may be, the best form is that which enables cooperative play. The end-goal for any protocol should be the highest amount of combined power across all three types (financial, technological, and social). In this case, Bitcoin has the current lead on others, with both its staying power socially, value, and antifragility.
In the end, power struggles result in emotional and financial gains or losses. Emotional in the sense that a certain power structure may have continued to rule resulting in positive or negative sentiment (the same for a power structure changing), and financial can either refer to the quantity of an asset or its price change.
Changing Power
A decentralized system’s health is completely dependent on how well-defined its power structures are. We can continually redefine what grants power in the first place, but without a grasp on who has power and why it’s quite difficult to do so. These protocols are meant to change depending on whoever decides to participate in their power structures in a variety of different ways.
Some decentralized systems have had clear-cut upgrade processes with well-defined timelines such as those that utilize ‘on-chain’ governance. Others elect for an ‘off-chain’ process in which the upgrade-structures are a bit messier, but the rigidity of the system remains intact and there’s a clear path to participation.
Again — it’s not about how the process is conducted, but rather how concretely the process is outlined. These processes can evolve, but the key is for the process to be transparent in its execution. Information asymmetries will be the killer of decentralized systems, as their power structures will consolidate and not be worth the effort to be involved in. Understanding power and power structures in decentralized systems will always be the first step toward a healthier ecosystem.
