Today, I’d like to explore the topic of blockchain governance. What is it, why do we need it and how are decisions made with the help of masternode operators.
How Does Governance Work In Blockchain Networks and Why Do We Need It?
First, let’s explore what governance is – the process of interaction and decision-making among certain actors involved in a collective problem. The issue is then solved by creating proposals and/or reinforcing them. The way governance works is very similar to how we as a society organize to make decisions which will lead us to a brighter future.
Without governance, blockchains would solely rely on the communication between users and the developers of a project to implement improvements to a given network. Despite having a decentralized model, without participants being able to vote on changes, the team behind each coin would have centralized power to edit the characteristics and capabilities of a blockchain based solely on their whim.
Governance over a decentralized network is one of the biggest problems we face. Generally speaking, it’s split into two categories.
Governance Over Networks Without Voting on Core Protocol Changes
In this first scenario, we have networks which don’t allow masternode operators to vote on changes related to the development, consensus modification or economic changes. Masternode operators have only the right to vote on proposals which are focused on funding requests created by the community.
Example #1: A user proposes to promote the coin on a local TV show. He creates a proposal and a certain % of masternode operators need to vote “Yes” in order to fund the idea.
Example #2: A few months ago, the Horizen (formerly known as ZenCash) team decided to change the collateral requirements for their masternodes from 10,000 SMART to 100,000 SMART. Obviously, the community was confused and asked clarification on why this change wasn’t voted on. The explanation by the development coordinator was that protocol changes were never and will never be based on the community’s opinion and will always depend on what the development team thinks is best for the project.
Governance Over Networks With Voting on Core Protocol Changes
These networks care about masternode operators’ opinion regarding certain changes. These alterations could revolve around core protocol, consensus, economic changes and being able to vote on particular funding proposals. This is what I believe to be the correct way to govern a system.
For example, back in 2016, there was a proposal on the Dash network which asked masternode operators if they would like to double the block size limit of their blocks. In under a day, the proposal had enough votes in order to be approved and was then implemented to the network. More info about the proposal itself can be found at DashCentral.org
Why Only Masternode Operators Have A Voice On Governance Voting?
Technically everyone has a voice regarding upcoming changes. They can directly communicate with the team via Discord / Telegram or create a DIP (Dash Improvement Proposal) on GitHub and have a discussion there.
That being said, masternode operators have an obligation to the community to vote on upcoming proposals by either voting with “Yes”, “No” or “Pass”. The voting part is not mandatory, the network will not downgrade the masternode, but it is one of the primary reasons for becoming a masternode operator.
So, back to the main question: Why do only masternode operators have a voice on governance voting? Because they have invested a good amount of money into that masternode knowing that if the project keeps improving and gets used more and more in real-world scenarios, that will attract more investors, which will bump up the price of the coin itself. This, in turn, means that they care about what happens with the project and how the funds are allocated, thus aiming to find the best possible solutions for achieving this goal.
Speaking of funds, here is how resources are distributed in order to fund these projects. In Dash as an example, the block rewards are split 45 % for miners / 45 % for masternode operator / 10% budget. This is where the funds come from when a proposal is approved.