EOS.IO and Future of Public Blockchain Governance

Governance problems in some of today’s most-recognized public blockchains.

The two most-recognized free, open-source software public blockchains in active use today are Bitcoin and Ethereum. Both succeed at securing substantial amounts of speculative value on public blockchains, but neither are positioned for broad commercial adoption, nor for enabling a fairer distribution of justice and wealth at local, national, or global scales. 
Bitcoin and Ethereum are close to being perfectly-ungovernable systems. It’s a strategy these blockchains use to deflect the problem of both internal and external accountability when things go wrong. Businesses, governments, and institutions are beginning to see the potential of public blockchain technology but they can’t safely invest in or participate in systems which lack formal consensus-making and conflict-resolution tools. 
BTC, ETH, and other ungoverned blockchains do implement minimal governance through community-based ad-hoc consensus. This approach can work in informal situations (clans, small towns, small companies,) but at larger scales communities require formal governance structures. Most ungoverned blockchains overlook this basic scaling law of human social organization. They cannot balance or moderate raw market forces. Their most valuable resource (the ability to make transactions) is completely dominated by the highest bidders, and their potential for broader business and community uses is thereby lost.

Large public blockchains require scalable self-governance.

Open-source public blockchains exist in the midst of societies, not above or outside them. They are not reset buttons for history or cure-alls for deep cultural, social, and institutional problems. Lack of adequate on-chain governance structures makes managing economic growth and user-base scaling near-impossible, and externalizes regulatory costs onto existing governments. (For example, Ethereum’s internally-unregulated ICO market has added a new class of workload for the US SEC and similar bodies abroad.)

Large-scale commercial and institutional stakeholders and the millions of users they serve need blockchains which are basically stable at the technical, economic, and self-governance levels. To attain stability a public blockchain must be designed to carefully balance user, developer, and network-infrastructure-provider economic incentives. To keep stability, a public blockchain must also be accorded a high level of respect by outside interests and governments. This can only come when the public blockchain can prove itself to be adequately self-governing at every level. To do this it must be equipped to observe and deploy the same sophisticated, formal governance methods the rest of the world uses to keep chaos in check and to resolve disputes efficiently and fairly.

Drawing on past self-governance experience: Elinor Ostrom’s work.

Free, open-source public blockchain technology is new but the underlying human social, economic, and legal concepts it implements in software and networking are as old as humanity itself. Let’s look to history for a bit of guidance about how good self-governance can be built and preserved.

Elinor Ostrom’s Governing the Commons (Cambridge, 1990) is a book-length reflection on the difficulties people across the globe and over centuries have faced in governing common-pooled resources (CPRs,) sources of valuable but limited goods, like shared fisheries, grazing pastures, and aquifers. A CPR’s supply of value is limited, it can be damaged or destroyed by exploitation. It requires good governance to preserve for both present and future users. Public blockchains, as sources of valuable but limited transaction capacity, are common-pooled resources also. To prosper they need to be carefully managed as such.

Ostrom’s work was published before the era of widespread internet commerce but it remains relevant because common-pooled resource governance problems are fundamentally human problems, not technical ones. Governing the Commons is a systematic and exhaustive effort to sift and study thousands of well-documented long-duration (>50–200 year) CPR scenarios from all over the planet in order to draw powerful, broad conclusions from their successes and failures. Many basic governance challenges facing today’s free, open-source software public blockchain projects appear at the heart of her work.

Free, open-source public blockchains are common-pooled resources.

The most important common-pooled resource on a free, open-source software public blockchain is bandwidth — the ability to make transactions. Bandwidth is limited by network and cost constraints and it is always a scarce resource. Increases in bandwidth, whether via improved technology or greater investment in hardware, tend to be met by increased demand. 
In Bitcoin and Ethereum it was hoped that users would respect the commons in their use of bandwidth — that transactions would remain affordable and available to everyone — but there are no code-level mechanisms to express these intentions or to make any shared agreements for monitoring or enforcing them. There is only the price of Bitcoin, the price of Ethereum, and the price of ETH ‘gas’ (computational payment.) On these blockchains, economic incentives are aligned to push the cost of transactions ever-higher, progressively excluding more and more users, and making it impossible to plan stable businesses around either protocol.

How EOS.IO software makes it possible to implement better governance.

EOS.IO avoids the governance problems of Bitcoin, Ethereum, and many other contemporaries by incorporating essential human governance concepts into the base software layer. EOS.IO blockchains and the smart-contract distributed applications (DApps) that run on them can implement the concepts on which all modern societies are built: constitutional agreement, property rights, shareholder stake, direct and delegated voting, arbitration, formation of corporate entities, contract enforcement, authority, trust, reputation, identity, rewards and sanctions, and more.

Avoiding the bandwidth “tragedy of the commons.”

EOS.IO’s most basic common-pooled resource is still bandwidth, just like Ethereum, Bitcoin, and most other public blockchains, but in EOS.IO bandwidth is no longer absolutely controlled by the wealthiest speculators. Individual stakeholders may allocate their share of an EOS.IO network’s total bandwidth as they see fit, for purposes public or private, for-profit or non-profit. Additionally, because there is a shared constitution, stakeholders can deliberate and agree on how to collectively pay for necessary on-chain self-governance functions. (For example, arbitration of on-chain disputes.) They can also use a constitutional article or amendment to permanently allocate a fraction of all bandwidth for public benefit or other larger purposes.

While the price per unit of stake(EOS token) and bandwidth may increase sharply over time as a network grows, EOS.IO stakeholders can prevent or remedy a bandwidth tragedy-of-the-commons using any combination of personally-underwritten or shared (constitutional) bandwidth reallocation schemes.

Having the code-level ability to implement scalable self-governance is just a start.

EOS.IO software makes it possible to implement good governance on a blockchain, but there is considerable distance between possibility and reality. How can stakeholders plan and execute self-governance for a common-pooled source system that will sustain itself for decades?

The history of OSS public blockchain projects to date shows us that, in the bigger picture, human factors have the greatest influence on a blockchain’s long-term stability and success. Building and preserving a community whose common vision is aligned with the blockchain’s code base, its future growth potential, and with its week-to-week, year-to-year governance needs is crucial, and difficult. 
Ostrom suggests that successful and long-lasting common-pooled resource governance arrangements share these characteristics:

1. Clearly-defined boundaries, with congruence between appropriation and provision rules. (What is the common-pooled resource? Who can take from it, subject to what limits, and what must they provide in return?) 
 EOS.IO’s code layer has clear boundaries: the common-pooled resource is the blockchain’s total transaction capacity (bandwidth.) Only EOS token holders may use or delegate their proportional share of bandwidth. By using stake (tokens) to allocate bandwidth, not willingness to pay ever-higher transaction fees, EOS.IO avoids the bandwidth “tragedy of the commons” which has made Bitcoin unusable for practical purposes and is threatening the same for Ethereum. On an EOS.IO blockchain, no matter how valuable bandwidth becomes, through token holders’ individual proportional stake and through their collective constitutional agreement, access to it can be protected from domination by unbalanced market forces.

2. Collective-choice arrangements. (Mechanisms for allowing a group to make decisions in an orderly way.) EOS.IO’s base code layer includes provision for a signed, mutually-binding constitution. Stakeholders and users on an EOS.IO blockchain agree to and are bound by the terms of the constitution. Distributed apps can also implement their own sub-constitutions as required. Stakeholders can vote on proposals and legislation directly on an EOS.IO blockchain.

3. Conflict-resolution and agreement-monitoring/enforcement mechanisms, with graduated sanctions. (Penalties of a type & size to suit the seriousness of the undesirable action.) EOS.IO software will implement some of these features in the base code, while others can be implemented at the distributed-application (DApp) layer as required.

4. Minimal recognition of rights to organize. (e.g. by outside authorities and governments.) This is an area EOS.IO will need to investigate & consider carefully in order to safely navigate.

5. The capacity to enable nested enterprises. The ability for a single common-pooled resource (in this case, a single EOS.IO blockchain of 21 Block Producers,) to coordinate and fit in with a larger inter-network of EOS.IO blockchains. Looking towards a future where there may be many separate EOS.IO blockchains, public and private, with different purposes and constitutions.

Challenges EOS.IO & other governed-blockchain stakeholders face in building & maintaining good self-governance.

Ostrom also analyzed many failed common-pooled resource governance scenarios in which the CPR itself was damaged or destroyed and some or all of the community was harmed. While by no means a comprehensive list, she covers two main categories of CPR failure (from Governing the Commons, p. 84):

Governance Failure Due to Internal Conflict

If serious internal conflict is not addressed and resolved during the formation phase, the resulting governance plan may be a recipe for failure. Stakeholders can make a closer approach to good governance by recognizing that:

1. Individuals need a common image of the problem being faced & the desired overall outcome.

Without a common image of the problem, people frame points in entirely different terms and tend to argue past one another. In this area the independent EOS.IO community is helping to expand often simplistic and seldom-questioned assumptions within the FOSS blockchain subculture about the basic reasons for (and limitations of) their will to organize.

2. The group needs to disaggregate problems into component parts.
Letting a problem go unanalyzed tends to kick the can down the road, leaving someone else to figure out how to deal with it. As an example, “censorship” is a potential problem on a shared blockchain platform. But arguing that some other rule or feature cannot be used because it causes “censorship” is not useful. There are many kinds of censorship, some lawful and necessary, others illegal and unacceptable. The concept has to be broken out into smaller parts to make the needed distinctions between types of censorship, when and how it may be applied, who has the authority to apply what kind, etc.

3. The group must recognize the legitimacy of diverse interests.

It’s seldom easy even for a relatively limited, homogeneous local or regional group to recognize the legitimacy of one another’s interests. How much harder is it for very large and often heterogeneous communities, like nation-states?

EOS.IO developers and stakeholders partnering to launch a public, globally-deployed blockchain platform are contemplating constitution and governance design for a system that will encompass all national jurisdictions. If it is to be workable at the largest scale and to endure for decades, the governance frameworks it is built upon must accommodate extremely diverse categories of legitimate interests.

Governance Failure Due to External Pressures

This mode of failure mostly comes later, after a self-governing common-pooled resource has grown large enough make its fruits (or difficulties) attractive to or problematic for larger authorities. The two broad types of externally-induced failure Ostrom describes are:

Government regulatory interference: laws and regulations which damage or erode economic self-sufficiency and self-governance efforts.

Government coercion/manipulation: Direct meddling by governments in specific instances, e.g. “tipping the balance” to unfairly favor Party A over Party B in a conflict or ongoing economic arrangement. 
A network of EOS.IO blockchains, both public and private, will likely grow to a point where its functions blend and intermingle with the larger, outside governance activities of many communities, states, and nations. Rather than conceiving of outside governments as inherently hostile entities and spending costly time and effort trying to devise methods to outwit them, EOS.IO community & governance-forming groups, both present and future, may be best-able to accomplish not only their internal missions of making economically-sustainable and internally-self-governing EOS.IO blockchains, but the larger mission of sharing the potential of such tools with millions of interdependent interest groups by realizing that the challenge of designing effective governance is more thoughtfully conceived as an “us versus us” problem, not an “us versus them” problem.

Moving ahead: Community growth and the ongoing evolution of self-governing open-source public blockchains.

Suggestions for present and future free, open-source software public blockchain architects and stakeholders:

  1. Design and build public FOSS blockchain architectures that are economically self-sustaining and self-governing on a 15 to 25-year time horizon.
  2. Conceive architectures, economies, and governance structures that, when taken as a simple whole within their larger global contexts, provide a reliable net benefit to uninterested outsiders. (Avoid externalizing effort, costs, and social impacts onto existing governments.) “Reliable net benefit” doesn’t have to mean “revenue stream.” Just persisting as a functioning example of trustworthy, efficient commerce and fairer self-governance amid societies struggling to meet those ideals can be seen as a net benefit.
  3. Preserve confidence in the ability of FOSS public blockchains to bring eventual deep social and political transformation while also respecting the effort and accumulated wisdom of existing governments. Analyze on- and off-chain economic, social, and governance problems not only from the blockchain side but from the outside government perspective.
  4. Transparency and accountability are much easier to attain on an open-source public blockchain. Over time they may radically alter existing forms of governance but they will require time to integrate into existing economic and political systems. Invite stakeholders in existing institutions to explore and question how open-source public blockchain technology applies to their specific situations and concerns. Let skeptical outsiders come to their own understandings and mental paradigm shifts over time.

The ramifications of EOS.IO’s structural innovations are not yet widely understood or appreciated. In the 1980’s and early 90’s when early visionaries spoke of email and online commerce as being economically- and socially-transformative they were often ignored or derided. Three decades later these technologies are deployed globally and respected as the indispensable foundations of contemporary commerce and communication. The EOS.IO platform (and future architectures which will spring from it) isn’t yet widely intelligible even within the small open-source public blockchain community. It may take months for its theoretical and practical structure to be understood by intelligent, technically-conversant early adopters, possibly years for its early implementations to prove themselves secure and workable at the network and self-governance level, perhaps decades to realize its full economic, social, legal, and governmental potential at national and global scales.

As EOS.IO and other scalable, efficient, self-governing public blockchain platforms gradually seep into our economic, political, and social structures over the coming years they will start to help us realize the potential of efficient, decentralized, transparent, and highly-trusted distributed trust architectures. Together with other rapidly-advancing technologies like robotics and artificial intelligence, public blockchains may help large societies across the globe to confront and to resolve some of the structural problems which stand in the way of a fairer distribution of wealth and freedom for all.

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Note: 2/2019: Title of article changed. Original title at time of first publication was, “EOS.IO and the Evolution of Free, Open-Source Public Blockchain Governance”