Jeremy Epstein writes to me, that type of change is what we are witnessing right now because the story of the blockchain revolution is not about crypto-currencies, really. The story is about governance and how we are going to be able to have more agency over our own lives.
I started thinking about this again recently as a I was reading the blog post from ARK (disclosure: advisor) called “DPOS and ARK Voting Explained.”
While the ARK team will be the first to admit that they didn’t really nail it in explaining DPOS or ARK voting, if you wade your way through it, you will begin to get an understanding of DPOS- Delegated Proof-of-Stake and how they are implementing it.
It’s actually pretty interesting.
Proof-of-Stake and More (as best as I understand it)
Proof-of-Work, as a reference point, is what makes the consensus algorithm in the Bitcoin blockchain work. You know that. It relies on people investing electricity and processing power to do work in order to solve a mathematical puzzle. That proof, based on math- like this whole revolution is- serves to confirm the accuracy, integrity and immutability of the next block in the chain, strengthening the foundation of decentralized trust. The downside, as you know, is the massive electricity consumption and the fact that many of the miners end up wasting it for no block reward at all.
Proof-of-Stake takes a different approach. For Proof-of-Stake, if you have a token/coin (or more), you are encouraged to hold your coins/tokens in your desktop wallet. Turning your wallet into a staking node. This helps the PoS network and as such rewards you a percent of the networks current inflation rate for doing so. The reward is based on the amount of coins in your wallet which determines the % of rewards you get annually, divided by all the other open wallets. This is inherently greener than Proof-of-Work as it only requires you leave your computer running 24/7 as opposed to dedicated power consuming miners. The coins, however, are locked for the staking period, unavailable for you to sell or trade.
Delegated Proof-of-Stake is allows for true governance because it enables true freedom with your tokens. In DPOS, you do not need to leave your wallet open or computer on and, even better (if you have ever tried this, you know what I am talking about), you do not need to download the blockchain and sync like PoW and PoS.
Instead, you vote for delegate nodes to run and secure the network on your behalf, similar to having political representatives, but in DPOS, you can freely trade your tokens at any time and your wallets and the network adjust your voting weight automatically
This model is far less energy consuming than the previous two, because there is a finite number of delegate nodes running. In ARK’s case, for example, there are 51 delegates, using about the same amount of power as most small office buildings.
This model of governance is also ideal for updates in the protocol which, as we have seen in the Bitcoin scaling debate, it can take years for consensus for upgrades to the network. But with DPoS it only takes a push to the github repository where either the majority of the 51 delegates accepts the update, or they don’t. At any time, you can remove your support for one delegate and assign to another (imaging being able to change your vote to a different Congressperson or Senator is if you don’t agree with them. If enough people agree with you, boom, you have a new rep/delegate.)
In all these models (and others as well), the idea is to align individual and community interests with each other, enforced by non-human methods (aka the ‘protocol’) and secured by the blockchain.
As token holders, it is against our own self-interest economically to validate inaccurate transactions (or elect dishonest delegates) that would compromise the integrity of the blockchain. Remember, if you are a token holder and you validate an inaccurate transaction, the value of your token is going to go down because you will enable the “double spend,” which is the key problem that blockchains solved in the first place. Unless you’re insane, you’re not going to do that.
The good news is, even if you are insane, it doesn’t matter, because the other token holders are not (hopefully), so only accurate blocks will get confirmed and mined. Then, the block reward is divvied up among all of the token holders who participated or “staked” during that round. In other words, you will get a return on your investment if you are the “staker.”
Blockchains, Voting, and New Governance
My moment of epiphany on this topic actually began back in back in June, but really hit me hard when I read Fred Ehrsam’s post, Blockchain Governance: Programming Our Future, which starts off with a powerful quote.
As with organisms, the most successful blockchains will be those that can best adapt to their environments. Assuming these systems need to evolve to survive, initial design is important, but over a long enough timeline, the mechanisms for change are most important.
This is true for civilizations, animals, and individuals. Go back to Darwin, right?
The focus on governance within the world of blockchains is a focus on “how do we change over time while protecting the core values of the participants AND doing it in a way that keeps things decentralized so that power does not get too concentrated?
What we have seen over history is that initiatives for protecting the rights of individuals (ancient Greece, ancient Rome, modern-day US) tends to eventually concentrate power in the center, violating the very promise of the original vision.
The blockchain revolution acknowledges this and use the decentralized consensus algorithms to minimize the chances of this happening by ensuring that math, not people, are in control. No matter how hard you argue or how big your guns are, 2+2 is always going to equal 4.
That is a good thing because it sets the playing field for experimentation with new models for optimal. Ehrsam goes on to point out that you really need two things for society to work. Incentives and mechanisms for cooperation. From there, Ehrsam doesn’t care what you do. It’s up to you and the advantage of doing it with blockchains is that experimentation in governance models is now REALLY cheap to do.
You don’t need to overthrow a ruler or incorporate. You just spin up a blockchain (it’s why ARK sometimes says that their value proposition is “Point. Click. Blockchain”) and go from there.
You can play around with rewards. You can play around with voting. If you like it, stay. If others like it, they will join. If you do not like it, you can leave or, you can fork and go your own way.
This is why the key word in this whole thing is “permissionless.” You don’t need to ask anyone permission to start your own model. You just do it and, if there is value for others, they will join you.
As others join, of course, politics naturally ensues (which is fine). However, the rules, or mechanisms, for cooperation are already built into the protocol. You may not like that a basket is worth two points, but that’s the rule of the game….for now.
If you decide you want a basket to be worth 5 points, you can do that, but nothing happens until you get a majority of people who are also token holders to vote along with you. Remember, you have to protect the value of your investment.
Drilling in on Decentralized Governance
A few articles that helped me think about decentralized governance were Phil Windley’s explanation of how the Sovrin foundation works. Phil was an author in Blockchains in the Mainstream and is really committed to protecting your personal privacy. Phil writes:
One of the ironies of decentralized systems is that they require better governance than most centralized systems.
Centralized systems are often governed in an ad hoc way because the central point of control can easily tell all participants what to do. Decentralized systems, on the other hand, must coordinate across multiple parties, all acting independently in their own self-interest.
This means that the rules of engagement and interaction must be spelled out and agreed to ahead of time, with incentives, disincentives, consequences, processes, and procedures made clear.
The Sovrin blockchain isn’t permissionless, but in this case it doesn’t matter and Phil does a great job of explaining why that isn’t important in this case as well. Where he adds a ton of value in terms of thinking about this topic is how he splits the governance between two components.
- the design of the protocols
- the operation of the ledger.
The design of the protocols are the “rules of the game.” Each basket is worth 2 points. A player can’t have more than 6 fouls, etc. The operation of the ledger is “what’s current state of the game?” LeBron has 3 fouls and 25 points.
The facts about both of those can change, but the process for how those change need to be spelled out. You can go from there.
Another article that absolutely blew my mind was Aron Fischer’s “Toward Better Ethereum Voting Protocols.” It is relatively technical, but if you can work your way through it, you will think about the concept of voting in an entirely new way. Honestly, after reading this one, I felt like I took the pill in The Matrix and all of a sudden, I was thinking to myself, “wait, the way we do democracy now may not be the BEST way of doing democracy.”
It may be (doubtful), but it may not be.
The cool thing is that it won’t cost a lot to test it out and see what works.
This is societal governance evolution on steroids.
This is part of the reason why I am excited about and interested in the Decentralized Autonomous Organization platforms like DAOstack (disclosure: advisor), Aragon, District0x, and Colony. (See this article in VentureBeat for a deep dive). It is also one of the reasons that people went crazy for Tezos (which raised-at the time- $232 million) last summer.
Notwithstanding their governance problems with their foundation (irony of ironies), the idea of a self-amending blockchain resonates with a lot of people. If you are interested in that, take a look at Arthur Breitman’s talk here.[As an aside, Johann Gevers who is at the heart of this Tezos issue with the Breitmans spoke to the most recent Crypto Explorers group trip to Crypto Valley. It was fascinating.]
Society Rebooted…at Low Cost
You do not have to look too hard around the world to find examples of people dissatisfied with the current governance models. While the current systems are working well for a LOT of people as Steven Pinker recently pointed out in the Wall St. Journal, “The Enlightenment is Working,” there are many people who feel like it can work even better.
The good news of the crypto craze is that now we have a way to figure out if and how it can work even better without much of the upheaval (potentially) that a new civilization or society would have required in the past.
To me, understanding how humans wish to govern themselves and then looking for the platforms that enable the most options for experimentation while protecting the rights of each individual- these are the ones worth investigating.
They are the babies whose births we are witnessing.
Source: Jeremy Epstein || February 15, 2018 |||
