Blockchain governance is an important topic. In varying contexts, we’ve written about it in the past (here and here). Vlad Zamfir and Fred Ehrsam have also long been making important contributions — and it’s important we continue these discussions accordingly as the ecosystem matures and grows, too.

By: Matthew Prewitt and Steven McKie

As a topic, blockchain governance is incredibly confusing. First, it is not always clear what’s being discussed. And even when it is, the intersecting questions of technology, culture, and political philosophy can get terribly knotted up. Our hope is that this piece will loosen the strands just a bit and help clarify what’s at stake.

First, conversations about blockchain and governance should clarify their scope by clearly answering two questions: (1) What is being governed, and (2) what is doing the governing? In other words, talking about blockchains and governance can refer to at least four things:

Governance of blockchains by humans (e.g., EIPs, BIPs, and forks)

Governance of humans by blockchains (e.g., via DAOs or bounties)

Governance of blockchains by blockchains (e.g., on-chain limitations and permissions)

Governance of humans (blockchain users/developers) by other humans (government authorities)

Figure 1: Blockchain Governance Map

There are interesting and important questions present for all four quadrants. But to be clear, this piece is concerned primarily with how humans take decisions that affect blockchains, through mechanisms such as code updates and forks (henceforth referred to as, “blockchain governance”).

Blockchain governance decisions matter, because they influence how blockchains work, how they are used, and what kind of communities spring up around them. These things, in turn, affect the broader society and ultimately matter to everyone.

Legitimacy, or . . .

As a jumping off point, let’s examine what Vlad Zamfir has called “legitimacy”, in one of his more recent posts on governance.

Zamfir defines the issue of blockchain governance in the following way. A number of stakeholders decide what happens with a blockchain: developers writing and updating the blockchain’s software, node operators deciding whether to run said software and implement updates, “trademark” holders (i.e., people or institutions asserting “this blockchain is Ethereum” or “that blockchain is Bitcoin”). In most cases these parties are not appointed by any authority. Yet, their coordination or lack thereof determines how a given blockchain’s software evolves overtime (or at all), and whether its community of developers and users stays together or “forks” to go a different ideological direction.

Legitimacy, in Zamfir’s usage, is a property that these parties’ coordination mechanisms have when their outcomes are likely to be respected:

“I say that a decision, decision-making process or coordination mechanism ‘has legitimacy’ if there is common knowledge that participants in governance will implement the decision, or use the decision-making process or coordination mechanism.” [2]

Further, from Zamfir:

“[I]f a coordination mechanism is legitimate, people will (justifiably) act like it’s a fact that people will use it. When a decision is legitimate, they don’t need to worry about whether other people will also implement it, they can be confident that they will. On the other hand, if it’s illegitimate then they will act like it’s a fact that people won’t use it. I see the establishment of legitimate decisions, decision-making processes and coordination mechanisms as a clear, elegant solution to coordination problems.” [2]

Moreover, Zamfir goes on to observe that such “legitimacy” can have various sources. For example, advocates of autonomous blockchains wish to limit the influence of humans in blockchains’ future governance processes: they want the blockchain itself to be the only source of legitimacy. Alternatively, one can imagine governance processes falling under the sway of various real-world groups, such as corporations, developer groups, or governmental institutions, so that these groups would monopolize the “legitimacy” behind a given blockchain.

All of this raises interesting, knotty questions. But let me pause for a semantic quibble.

. . . Authoritativeness

When Zamfir talks about legitimacy, he’s referring to an important subject in blockchain governance, and his analysis is lucid. But we do not think “legitimacy” is the best word choice. “Authoritativeness” would be more appropriate.

To be clear, this is a purely semantic argument, not a criticism of Zamfir’s logic. But occasionally semantics matter, and we think this is one of those times. Let us explain.

In the literature on political legitimacy, there are two general schools of thought: one descriptive, and the other normative. Descriptive theories of legitimacy take legitimacy to refer to peoples’ beliefs about where authority rests and how it arises. Normative theories of legitimacy, on the other hand, deal with the justification of authority. They distinguish between de facto authority and legitimate or rightful authority (you can learn more about the varying types of “power”, here).

Zamfir’s concept of legitimacy is purely descriptivist. His insights still matter, because it matters how members of blockchain communities locate authority, and what decisions they take to be authoritative. I just think there is a better word for this. Why not call it “authoritativeness?”

Take a look at this key passage from Zamfir, with “authoritativeness” replacing “legitimacy”. To my eyes, its meaning is clarified but unchanged:

“[I]f a coordination mechanism is authoritative, people will (justifiably) act like it’s a fact that people will use it. When a decision is authoritative, they don’t need to worry about whether other people will also implement it, they can be confident that they will. On the other hand, if it’s not authoritative then they will act like it’s a fact that people won’t use it. I see the establishment of authoritative decisions, decision-making processes and coordination mechanisms as a clear, elegant solution to coordination problems.” [2]

But we digress. The importance of the semantic point is simply to highlight the need for conversations about normative legitimacy in blockchain governance.

In blockchain communities, normative legitimacy matters hugely, much as it does in nation states, or other governed entities, like corporations and tribes. To illustrate: Suppose a cigar-chomping Generalissimo appears on state television to announce the success of a violent coup d’etat, declares himself head of state, and then issues credible, threat-backed commands to a fearful populace. Those commands are likely to be followed by all, or most. They are authoritative. But they are not legitimate, because the values of the community are embodied in certain decision procedures[1], which the Generalissimo ignored. The community will not accept the legitimacy of his decisions, because they were not arrived at through proper means (like elections), which reflect the community’s values. The distinction that the community members hold in their minds as they reject the legitimacy of the Generalissimo decisions, even while accepting their authoritativeness, is constitutive of that particular community. It is what makes that community a community, rather than just a bunch of people blindly following orders of its loudest or most referent community leaders.

Hopefully you can see why this is worth thinking about. If legitimacy, for blockchain communities, has no normative content, then blockchain communities don’t really stand for anything. They aren’t really communities.

So What Are Blockchain Communities, Anyway?

Yuval Harari has an interesting and concise take on what communities are. He says they are collections of people who believe in shared stories. Shared stories allow people to work with people they don’t already know, thus creating a community extending beyond mere family and friends. For example, we wouldn’t ordinarily trust a stranger. But if we learn that he/she believes the same religious/moral (i.e., normatively significant) stories that we believe, everything changes. We can trust him/her. And we can start cooperating accordingly without fear of repercussion or malice.

Blockchains are a technology that enables people to cooperate without trusting each other — without a shared narrative. In other words, they enable cooperation without community. But this is where things get confusing. Because that kind of cooperation — blockchains augmenting trust, and opening up the traditional boundaries of community — belongs in the bottom left quadrant of Fig. 1, above. It’s interesting and important. But it’s unrelated to what we’re calling “blockchain governance”, which concerns the upper right quadrant.

At the end of the day, blockchains are embedded in actual human communities. These communities are far-flung, contentious, and hard to define, but they exist. And they are constituted by shared stories and values that inform the legitimacy of the decisions taken about blockchains’ governance.

Now let’s look at three prominent examples from some of the major public crypto assets.

Comparing Bitcoin, Ethereum, and ZCash

Figure 2: Three major assets, from most conservative, to most progressive.

Bitcoin’s community is highly conservative (Fig. 2), with a starkly limited narrative of the blockchain’s purpose (basically centered on the idea of an alternative to fiat currency). Few parties meaningful have influence in governance. One of Bitcoin’s calling cards is the fact that it has been successfully operating almost autonomously, uninterrupted and at high volume, longer than any other blockchain. Thus, modifications are regarded warily, because they weaken that overall narrative.

Bitcoin’s community has repeatedly shown that they greatly value the conservative nature of technical improvements, and will push diligently if that ethos is challenged for the sake of what the “majority” deems a short term improvement (research Bitcoin’s history of opposing hard forks to learn more).

Ethereum’s community, by contrast, is far more fluid and open. It embraces the idea that its blockchain can and should serve dramatically different purposes for different people — with individual use cases serving as loosely-coupled applications that utilize the main public chain.

Moreover, its narrative centers less on the idea of an alternative currency, and more on the idea of decentralizing institutions. Where the Bitcoin community doesn’t seem to mind so much if it generates some kind of new plutocracy, the Ethereum community is more “big tent”, with room for more egalitarian dreams (as long as you respect the progressive ethos).

Their community was built and predicated on improving and scaling the Ethereum layer 1 codebase, and launched with a very ambitious roadmap in order to reach their end goal of implementing Proof of Stake. The more progressive your community, the wider your eventual funnel of opportunities for your captured community members. (i.e. Ethereum and its massive development community/funnel, which was likely driven from the influx of capital from the ICO boom in late ‘17 — early ‘18).

Figure 3: As communities grow and get more liquid, the importance of having a large funnel to bring in new talent grows in importance.

The more innovative, and “fast-moving” cryptocurrencies will tend to lean more towards the progressive end, which is especially aided by a large market-cap and a highly-liquid asset (which means the community is not stricken by poor capital reallocation/reinvestment into their ecosystem).

ZCash belongs somewhere between these two poles. As a newer asset that only launched in October of 2016, Zcash had a lot of ground to catch up on when compared to Bitcoin and Ethereum.

This also lends credibility to the theory that the newer your major public chain asset is (one that is deemed sensible and worthwhile by the technical community), the greater the need for your community to be slightly more progressive than its most legacy incumbent, in order to “catch-up” in liquidity and be integrated into existing services to gain a proper foothold. Though, still forked from Bitcoin’s original codebase, and utilizing a UTXO set, ZCash must still maintain a level of conservatism compared to the seemingly unmatched pace of technical innovation that persists in Ethereum’s smart contract, account-based, token-focused model.

With the launch of the ZCash Company, and eventually the ZCash Foundation and other for-profit/non-profit entities, ZCash is slowly building a strong foundation by which its community can stand on long-term; while concurrently building an ethos and a narrative around both quality, and security.

The public parameters at the root of ZCash’s zero-knowledge proofs were generated by actual humans at a (maximally transparent) “ceremony.” Thus, non-zero trust in the integrity of that process is required in order to believe in the inviolability of ZCash’s encryption.

Moreover, ZCash’s updates are highly transparent and open to user participation, and each subsequent hard fork increases the number of active participants and further decentralizes improvements with each iteration of the MPC ceremony . These are indicia of “openness”. At the same time, ZCash distinguishes itself from Bitcoin and Ethereum by creating a radically cloaked environment, in which users can participate in good or evil without discovery. In this respect it appeals to radical individualists, with a values-agnostic user base. ZCash continues to navigate an interesting tension between the closed and open aspects of its community.

Their focus is on targeting a more moderate, yet still conservative rate of change, while refusing to add any unnecessary features that are deemed superfluous by its low-level technical community members.

By first developing integrated security practices, a focus on scientific peer review/code review, and slowly adding support for alternative fullnode clients, they can steer the future of the asset in the right direction — while simultaneously distancing and differentiating itself from incumbents like Bitcoin, with its strong focus on privacy and long-term growth.

Their team is even aware of the potential that one day its internal community may opt to hard fork itself, in order to improve its base-layer for a much-needed use case or other major addition that could make the asset’s community even more resilient. Having just completed another planned hardfork with the successful release of Sapling, the ZCash community is already leading the way for further layer 1 improvements with next year’s “Blossom” upgrade.

Ultimately, we believe that fluid and open governance styles are conducive to the growth of blockchain communities. Giving more people a seat at the table — and role in shaping the narrative — “widens the funnel” of community members. For example, both Bitcoin and Ethereum have attracted enormous speculative interest during the past several years. But Ethereum has done much more to translate that speculative energy into a real, thriving community — largely through institutions like the Ethereum Foundation, ConsenSys, and meaningful developer communities like EthMagicians — with ZCash on the path to build similarly with its slightly more progressive vision when compared to Bitcoin.

Conclusion

Going forward, we will be looking out for blockchain communities with open, fluid governance, and a proven tendency to translate speculative energy into a concrete developer opportunity. And perhaps most importantly, we will be looking for communities tied together by a compelling, inspiring story.

The low-level technical semantics of each major blockchain-based asset is of course incredibly important — however a common narrative that people can understand and echo is just as important, and crucial for the longevity and growth of a new community.

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[1] In this passage, I am focusing on “process” legitimacy. But normative criteria for legitimacy can also concern outcomes.

[2] Zamfir, Blockchain Governance 101

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