Understanding Blockchain Governance

by | Nov 25, 2021

Disclaimer: Posts on the HyperTrader blog and associated HyperLinq websites are for educational and informational purposes only. These posts should not be taken as financial advice, nor are they meant to be viewed as trading advice. HyperLinq Inc. or the authors take no responsibility for any damages or losses.

It’s an established fact that new emerging technologies are not just changing how we interact with our devices and interest, but the very world we live in. The emergence of technologies such as artificial intelligence, metaverse, and blockchain has changed the definition of the most fundamental concepts of our life and the world around us.

Keeping up with the innovations of blockchain technology in our life, today, we’ll try to understand the concept of blockchain governance, its benefits, and how it works. Before we start reading about the decentralized model in blockchain governance, let us first understand the traditional governance model that we are so actively a part of.

What is the Traditional Model of Governance?

In a traditional model of governance, there exists a central authority that makes all the decisions for the people who are a part of that system.

This type of governance is used by almost all the big institutions throughout the world. As it involves trusting a supreme party for making all the decisions, it creates possibilities of corruption. Though institutions, like a democratic government,  use representatives elected by the people to make decisions, they too can be biased and make decisions favoring their personal benefits.

These problems can be overcome by using the blockchain governance model.

Introduction of the Blockchain Governance Model

In the blockchain governance model, there is no need for the involved participants to trust or even know the other participants in the system. By cutting out the middlemen, i.e. by decentralization, this model enables the users to directly participate in the decision-making process in a trustless manner, all with the help of smart contracts. This can be the beginning of digital democracy.

Why Decentralize Governance?

Everything that takes place on the blockchain is completely transparent and each user can see whatever changes are being made at any given point in time.

The decisions need to be approved by various stakeholders before being finalized. As the entire process is transparent, it eliminates the risk of a single authority manipulating the decision in their favor.

It also roots out the possibility of a single point of failure

Blockchain governance is both cost and time-efficient as it does not follow the hierarchical model of decision making which is usually seen in the traditional mode of governance.

Off-chain vs. On-chain Governance

To keep up with the changing needs of the users, regular changes need to be done to a particular blockchain. Off and On-chain governance models are used to decide what changes should be introduced.

In Off-chain governance, due to the immutability of a particular blockchain, a new feature that allows every user to cast their vote individually cannot be introduced. Due to this issue, every important decision needs to be taken outside the blockchain by the core developers, nodes, and important stakeholders of the blockchain. This raises some issues regarding the decentralized nature of blockchain governance.

In On-chain governance, all users can vote individually for a particular decision to be implemented on the blockchain itself via smart contracts. This provides complete transparency of the decision-making process. The decisions taken are in favor of the collective participants rather than a particular group.

The Main Goal of Blockchain Governance

The final objective of blockchain governance is to remove the middlemen of power and redistribute it among the people involved in the system. The on-chain governance model is already being used in many DAOs and financial protocols built-in DeFi.

Though the blockchain governance model is still at a very early age and requires a lot of improvement, we’re on the right path and the future looks sunny.

Head of Content Marketing @ HyperLinq. His love for Chai and mountains precedes everything. Often wonders about things like, "why $1 earned through leverage feels 100x better than $1 earned selling your time?"

All You Need To Know About Bitcoin ETFs

Introduction to Bitcoin ETFs and their advantages & disadvantages.

Announcement: Now Trade on FTX Derivatives with HyperTrader

We, at HyperLinq, are delighted to announce the onboarding of FTX Derivatives as our newest crypto exchange to support trading on our native desktop app, HyperTrader. Thus enabling FTX Derivatives traders to supercharge their crypto trading and experience reduced...

Introduction to Blockchain Stack

What is blockchain stack and what are various layers of a blockchain stack?

How Blockchain Governance Works?

Understanding the working of blockchain governance and how incentives are aligned across various participants.

What is Bitcoin Taproot Update?

What is Bitcoin Taproot Update?

Metaverse 101: The Future is Here

All you need to know about Metaverse.

What are Blockchain Domains?

What are blockchain domains and what are their benefits over traditional domains?

Real-World Use-Case of Smart Contracts

What are the real world use cases of smart contracts?

What is IPFS?

What is InterPlanetary File System and how it works?

Now Trade on OKEx with HyperTrader

Announcement: Now Trade on OKEx with HyperTrader.

All You Need To Know About Bitcoin ETFs

Introduction to Bitcoin ETFs and their advantages & disadvantages.

Announcement: Now Trade on FTX Derivatives with HyperTrader

We, at HyperLinq, are delighted to announce the onboarding of FTX Derivatives as our newest crypto exchange to support trading on our native desktop app, HyperTrader. Thus enabling FTX Derivatives traders to supercharge their crypto trading and experience reduced...

Introduction to Blockchain Stack

What is blockchain stack and what are various layers of a blockchain stack?

How Blockchain Governance Works?

Understanding the working of blockchain governance and how incentives are aligned across various participants.

What is Bitcoin Taproot Update?

What is Bitcoin Taproot Update?

Metaverse 101: The Future is Here

All you need to know about Metaverse.

What are Blockchain Domains?

What are blockchain domains and what are their benefits over traditional domains?

Real-World Use-Case of Smart Contracts

What are the real world use cases of smart contracts?

What is IPFS?

What is InterPlanetary File System and how it works?

Now Trade on OKEx with HyperTrader

Announcement: Now Trade on OKEx with HyperTrader.

%d bloggers like this: