Blockchain Governance

Blockchains are decentralized systems. There is no single point of control or administration. In contrast to other IT systems, there is no admin in a blockchain. Instead, blockchains are governed.

Blockchains are decentralized systems. There is no single point of control or administration. In contrast to other IT systems, there is no admin in a blockchain. Instead, blockchains are governed.

To make any update to the rules of a blockchain, every participant must agree directly or indirectly. Blockchain governance comprises the processes to coordinate this agreement.

In general, there are three main stakeholders of a blockchain:
  1. Developers who implement the blockchain protocol rules.
  2. Node hosts who run the blockchain nodes to provide decentralization to the network.
  3. End users who use the blockchain to process their transactions.
Also, there are a few things that need agreement on how the blockchain would work:
  1. The consensus mechanism and associated rules.
  2. The economic incentives for node hosts.
  3. The transaction fee for users.
All these things must be agreed upon by all three stakeholders in one way or the other, and then coded in the blockchain node software as the core rules.

When there is a need to update any of these rules, blockchain governance processes are used to get the opinion of stakeholders and enact the new rules accordingly.

In different blockchains, different governance processes could be followed. For example, the initial proposals for a change are generally written as an RFC on which the community comments and votes. Once there’s enough discussion and refinement on a proposal, it is then coded in the node software. The node hosts then update to this new version of the node software, and the blockchain as a whole is updated. In some cases, some of the node hosts decide not to update the node software because of their disagreement on the new rules, and in such scenarios, a fork happens on the chain.

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