How Blockchain & Decentralized Governance Protocols Build Confidence
Cryptocurrency market down cycles are a messy free fall of digital currency values accompanied by massive FUD. Cryptocurrency volatility, however, barely affects the sentiments of investors that believe in blockchain technology.
Blockchain is the technology that powers most cryptocurrencies in the market today. Distributed ledger technology (DLT) works like a giant Xerox machine on steroids.
It groups transactions together, secures them through strong cryptography and places them in public view. It then makes copies of these transactions and disperses them over a wide network of users.
Consequently, blockchain technology can support the transfer of value in a digital environment without intermediaries such as the traditional finance system’s banks. Its transaction process does not require arbitration from insurance agents, lawyers, payment platforms, or credit card companies.
Distributed ledger technology and its protocols generate infrastructure that allows synchronous data access. It supports record updates and validation of information in an unchangeable or immutable manner across vast networks of users. These users are often multiple entities dispersed across diverse geographical locations.
Blockchain versus cryptocurrencies
Blockchain technology came to the limelight with the release of Bitcoin, the first successful distributed ledger technology platform. Blockchain use has since then expanded, supporting over 10,000 different types of cryptocurrencies.
Cryptocurrencies such as the Mimo governance token or the PAR token are means of exchange of value in blockchain networks. On the other hand, blockchain technology is a disruptive, foundational technology whose governance protocols build confidence in every business sector.
The Mimo governance token, for instance, is the Mimo Protocol’s native cryptocurrency. Mimo helps cryptocurrency investors access value from their crypto assets without selling them first. As a result, a cryptocurrency holder that believes in blockchain technology can hold on to their crypto assets despite market fluctuations.
They can save their crypto assets in Mimo vaults and harvest liquidity from the Mimo protocols’ yield farming and liquidity mining features. A crypto user can lock their ETH or BTC in a vault and mint the PAR stablecoin as debt through the Mimo protocol.
PAR’s algorithm tracks the value of the Euro. Consequently, Mimo Protocol users can exchange their PAR for fiat and have real-world cash at hand for real-world uses. Furthermore, unlike regular cryptocurrencies, PAR is not volatile.
Additionally, PAR is different. It does not peg its price to the USD, but the EURO, giving users an alternative international stable currency to bet on, other than the dollar.
The beauty of the Mimo Protocol is that all crypto assets locked in its vaults will remain exposed to the market’s movement. In addition, Mimo’s protocol will overcollateralize your debt and send you a margin call notification when falling crypto prices affect your debt valuation.
At this point, you can rebalance your loan to collateral ratio to maintain the Mimo Protocol’s LTV (loan-to-value) ratio. To this end, the Mimo Protocol functions like a bank without the traditional finance industry demerits of friction, high cost of loans, excessive gatekeeping, and opaqueness of operations.
What is decentralization and blockchain governance?
Decentralization in a blockchain governance protocol builds confidence and trust in blockchain platforms. As an illustration, Mimo token holders can partake in the protocol’s governance decisions. Other governance tokens, for instance, incentivize blockchain nodes that govern the network and validate and verify transactions.
Blockchain governance protocols allow all network stakeholders to exercise their influence or bargaining power. Major blockchain governance protocols include consensus, incentives, and information security mechanisms.
A consensus mechanism ensures that primary data validating nodes interact with each other and achieve consensus on the accuracy of network data. On the other hand, the incentive protocols motivate all network governance stakeholders and the network’s community of users. The Mimo Protocol is part of the latter. MIMO token holders can partake in many decisions to be taken about the management of the protocol, by using their vMIMO to actively participate in the Mimo Protocol voting mechanism.
Other governance protocols reward mining nodes for validating transactions and developers for platform development. The reward protocol also incentivizes businesses that stake their claim on the project’s use case by providing much-needed liquidity and capital.
How does blockchain governance build confidence in project use cases?
It is not a coincidence that Bitcoin, the first successful blockchain use case, launched in 2009. Satoshi Nakamoto, the pseudonymous entity that released the Bitcoin whitepaper in October 2008, minted the first BTC on January 3, 2009.
Engraved on the Genesis block code was the message, “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”. It was a reference to the global economic meltdown caused by the financial industry intermediaries’ excesses.
The collapse of financial institutions, such as Lehmann Brothers, had an enormous negative impact on public trust. It undermined the public’s trust in the stability of the traditional financial system and its underlying principles.
Trust is vital to maintaining economic, political, and social systems. Its decrease led to doubts about the legitimacy of the legacy market-based economy. As per research by the Centre for European Policy Studies (CEPS), the systemic breakdown of trust led to louder calls for state regulation.
It also made the public resistant to the free-market system. Citizens in worst-affected economies began to view globalization as a threat. Consequently, they pushed for reduced integration of their economies in a globalized context.
After the global meltdown, 65% of all EU residents called for stricter regulations and controls over businesses. In the US, 30% of residents felt that national protectionism would end the financial crunch and avert such instances in the future.
As more citizens became aware of the fragility of the capitalist system, they also lost trust in elected officials and federal government decision-making. To illustrate this point, there was massive economic weakness and moderate growth in the aftermath of the Great Recession.
The unemployment rate spiked to historical levels, and most small businesses went under. Governments enacted new laws such as 2010’s Dodd-Frank Act in response to the clamor for vigilance and regulation. But despite the immense turmoil that large financial institutions had caused, governments printed cash and handed it over to financial institutions.
Financial institutions facing massive derivative losses received $245.1 billion as a bailout package. Following that, 75% of American adults have gradually lost trust in the federal government’s ability to solve problems, as per Pew research data.
As per UN data, trust in national governments has declined from highs of 73% in the late 50s to lows of 24% in 2021. Their research states that Western European citizens have a similar decline in public trust as the US.
On a global scale, public trust in governments fell from 46% in 2006 to 36% by 2019. Government corruption and scandals have undermined public trust in public institutions, forcing more citizens to disengage from their general obligations.
Consequently, governments and their citizens are locked in a vicious cycle that affects economic stability, security, and the functioning of vital institutions.
Confidence vs. Trust
In their dissertation “blockchain as a confidence machine,” scholars Reijers, Mannan, and De Fillipi state that blockchain is not just a trustless technology but a confidence-building machine. It can stem the erosion of trust in business and public institutions since users subject themselves to the authority of math or code rather than untrustworthy opaque intermediaries and leadership.
Trust and confidence are two distinct phenomena. Trust leaves one party vulnerable to the other’s failures. It is therefore risky and is characterized by uncertainty about outcomes.
You can only gauge the trustworthiness of an individual, institution, or government by direct and repeated interaction. However, citizens may confer trust on institutions that provide trusted third-party credentials.
When you confer trust on an institution, you are taking on the belief that they will operate and act in your best interests. This is despite the fact that you may not have the opportunity to audit the institution’s internal mechanics or functions.
Technological trust-building tools, however, function as per predefined rules. They cannot depart from them unless by the intervention of third-party operators. They are therefore naturally trustworthy.
Confidence does not have expectations of risk. On the contrary, it has an attitude of assurance. To this end, when you have confidence in an institution or platform, you will not operate in an environment of uncertainty.
Confidence-inspiring systems have statistical evidence or prior experience that proves their ability to meet user expectations. To illustrate this point, since its 2009 launch, the Bitcoin blockchain has facilitated over 700 million transactions.
The Bitcoin Proof of Work (PoW) consensus algorithm has withstood all Sybil attacks and has not had a single successful data hacking attempt in its 13 years of operations. Since 2015, the Ethereum network has supported over 1.4 billion transactions.
Ethereum supports over 212 decentralized finance applications and is the playground to a massive blockchain developer community. However, despite its position as the home of code and digital value transfer, Ethereum has had but one smart contract hack.
In mid-2016, a hacker siphoned funds from the network’s DAO or decentralized autonomous organization, leading to a hardfork. However, that attack was the launch pad of the resilient network that Ethereum is today.
Ethereum has an average of 5000 to 8000 nodes active each day. These nodes are geographically dispersed in over 70 countries. It follows then that the Ethereum network’s governance protocols are a confidence machine.
It functions without the support of intermediaries and has statistical proof that people can trust math to create “trustless trust”. The Mimo Protocol is built on the Ethereum network, leveraging the security and immutability of Ethereum data to secure its own.
Its developers and community have confidence in the programmable blockchain. To this end, Mimo Protocol users are not taking a ‘leap of faith’ when banking their crypto assets into Mimo’s vaults.
The Mimo Protocol leverages Ethereum and Polygon to build confidence in its protocols, including the PAR stablecoin and the Mimo governance token.
In summary, blockchain governance is a confidence-building tool that can change how institutions and businesses approach their relationships with the public. It can replace the need to build trust with confidence in institutions and business systems.
It sets up technological checks and balances that eliminates power imbalances via the predictability of the blockchain code. To this end, any user that trusts the Bitcoin use case and is confident of its governance protocols will HODL despite market volatility.
Confidence in Ethereum’s governance protocol can help the Mimo Protocol user bank on its vault’s security and effectiveness. The Ethereum blockchain hashing function and public-private key cryptography is predictable and has proven to work precisely.
Its code is open source and has been under scrutiny by millions of technologists, computer scientists, skeptics, and developers. On top of that, game theory and economic incentives schemes ensure that miners will always make decisions that best maximize their stake in the network.
Every node holds a copy of network data and can verify that legitimacy via its blockchain explorer. To this end, Mimo users can have confidence that the network will function as it should even though they may not know all the parties that maintain it.