In Crypto Economy, Governance is key!

Bruno Rodrigues
Dec 28, 2017 · 3 min read

According to the technical definition, Blockchain is a shared database and most of the times an open source software (especially public blockchains). I like to imagine Blockchain as a community or a city-state.

Following this analogy, the token would be the coin to buy products and services offered within that ecosystem, and the token holders would be citizens. It can be bitcoin, ether or one of the more than 1,000 cryptocurrencies.

Other participants in this city-state are validators (can be compared to the judiciary and the notary office?), that verifies if the transactions realized in that city are correct. There are also the developers who are responsible for the maintenance and deployment of new upgrades in the city infrastructure (can be compared to executive power?).

How these participants in the city reach consensus about the platform evolution is the function of legislative or Governance Systems. As in a city-state, governance mechanisms are essential to give “voice” and “ears” to participants. It is a way to listen to their needs and aspirations and also to give transparency and accountability to the ecosystem.

When blockchains are an open source software, Governance is even more critical. If participants are not satisfied with platform evolution, they can make a hard fork and create a new blockchain. In other words, they can replicate the city infrastructure and make the changes they want there.
In the future, probably we will see “ghost cities”as foundations will have money from ICOs, but participants may not agree with the directions taken by the platform. It is straightforward to copy and paste.

The only protection, the only entry barrier is Network Effect. The value of the city-state’s coin is in the services and products offered within it (e.g., Ehtereum being a platform to launch new tokens) and their acceptance in other “cities”, including products in real economy. The value is in the nonspeculative transacted volume in that community.

So, in the crypto economy, Governance is key. That’s the way you can ensure participants are engaged in your ecosystem, and that’s the way you can preserve your principal competitive advantage: high switching costs due to network effect! (See Bruce Greenwald for more on business strategy)

Union Square Ventures pointed to governance as the new basis for competition ten years ago.

Governance is the way to nurture network effect. It is important not only for the technical upgrades but also for strategic discussion and financial control . To advance on this subject, I suggest the separation into two topics:

(1) Transparency and Accountability:
How and which will be the reports shared with the community? The governance policies and procedures are clear and public?…

(2) Decision-Making Process and Governance Structures:
Which is the better legal structure, is it a foundation? What is the competence of board of directors? How are they elected? Is there any technical advisory board? Is there any audit board? How can participants propose changes and vote? In which subjects they vote? Pros and cons for on chain (token holders have political rights) or off chain governance? Coin Holders and users will have the same political rights? There will be a polling mechanism and a public comment process? There will be a consensus on the evaluation criteria and tradeoffs in advance of the actual discussion?…

In thinking governance changes for existing blockchains is essential to remember Vlad Zamfir words:

There is a long way to walk through #CryptoGovernance and in order to have a more productive path, a shared value is necessary: cooperation.

The benefit of Blockchain is trust, the challenge is cooperation. In the end, it is all about connecting people.

Insights!

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Bruno Rodrigues

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Insights!

Insights!

Veja o mundo sob novas perspectivas! Veja o que há fora da caixa! Prepara-se para WOWs! AHAs! HAHAHAs! “Every child is an artist. The challenge is how to remain an artist once we grow up” — Pablo Picasso