Blockchain brings the opportunity to do far more than move money around. There are an increasing number of systems that allow miners – those who maintain the network and process transactions – to vote on key updates, in effect deciding whether certain features are implemented.

Miners rule

In any blockchain system, the features proposed for implementation have to appeal to miners in order to ensure they are passed. As we have found out in the case of Bitcoin, decentralisation comes with diverse implications for governance, and it is not always easy to ensure that a given feature is activated (see the debate around SegWit and 2x). Different miners value different things. Additionally, some take a long-term approach to success, others are looking for short-term benefits.

Let’s take a look at another example of how this works in practice. Waves released v13.3 on 7 June, which contained 4 significant updates:

Data Transactions

Burn Any Tokens

Sponsored Transactions

Fair Proof-of-Stake

In Waves, new features aren’t automatically activated on mainnet, instead needing a critical proportion of miners’ support before going live – the Waves feature activation protocol. Voting takes place over a period of 10,000 blocks, or around one week, and 80% of blocks within that period need to contain an approval flag for a feature to be activated. (You can see the progress of voting for each feature at http://dev.pywaves.org/activation.)

Background

Currently, two features out of the proposed four have received sufficient votes for activation. However, Sponsored Transactions and Fair PoS have not. As such, they may not be activated this time around.

Fee sponsorship. This feature alters the way that custom assets are used as transaction fees. The current situation allows users to create practically free transactions by paying fees in custom tokens, contributing to problems of spam assets and their distribution. Fee sponsorship will allow projects to create autonomous ecosystems in which the asset issuer pays miners in WAVES tokens to process transactions with token payments. You can find more discussion on the Waves forum.

Fair PoS. As present, large miners receive around 10-20% more profit from mining compared to smaller miners, due to the quirks of the PoS algorithm borrowed from Nxt. The relative performance of miners can be found in the ‘Performance ratio’ column at http://dev.pywaves.org/generators-monthly/. The change will make this distribution more fair, and will bring other benefits like enhanced security against some types of attack.

Democracy in action

These proposals failed to pass partly because one major mining pool decided it would only support features one at a time, rather than all together. Their reasoning was two-fold. Firstly, there have recently been some network issues. In the days before the release of 13.3, and before the activation of any functional changes, there was a network fork due to the incompatibility of old and new versions of the Waves node. The second is the performance issues associated with some API methods, e.g. getting transactions by address. (Waves has acknowledged these points, suggesting that in the future, activating features one-by-one might prove a better approach.)

However, a closer look at the nature and impact of these two proposals on miners helps show some broader economic context that may have fed into the decision not to pass them.

One of the concerns behind the Fee Sponsorship update has been the costs associated with legitimate transfers to many accounts. Some big mining pools use a custom asset to distribute rewards to their LPoS leasers, and the change would make it uneconomical to reward small leasers. In short, it impacts big miners’ business models. This is one reason why proposals for changes to any blockchain protocol should be conservative: there are real businesses and their customers at the other end of them. Making a change to the economic model of a blockchain protocol is a little like a central bank raising interest rates: there will always be winners and losers. (This particular problem has actually been addressed by the MassTransfer function, which allows many transfers to be bundled within the same transaction. This dramatically lowers the cost of such distributions, which may be enough to win big miners over to the Fee Sponsorship proposal.)

The second change, Fair PoS, also has an economic impact on big miners – in fact, this was explicitly the purpose. However, large miners didn’t all vote against it, showing the diversity of opinion and values among the community. Waves’ largest miner, WavesGo, has voted in favour, even though it would mean lost revenues. This is mostly because leasing pools and the community members behind them care about their reputation in the community and want greater decentralisation and wider platform development. This particular change has been discussed at length within the community, and is essentially an issue of branding: it presents Waves as a fair platform. (You can find out more about Fair PoS here and here.) Nevertheless, miners are well within their rights to vote against it, and it’s understandable that some might on economic grounds – especially if they are only just profitable under the current model.

These outcomes for Waves demonstrate one of the strengths of blockchain governance and the nature of decentralised consensus. Blockchain is a democracy of voting nodes, each with their own policy concerns. Any change that is proposed must recognise the realities and complexities of that.

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