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What is blockchain technology?

A guide to open-governance models

Most organisations still rely on outdated centralised decision-making processes, where they don't leverage all the potential individuals that participate within their network. How can open-ended governance models change how we transact globally?

With the rise of cryptocurrencies, new governance models have emerged. Although some cryptocurrency enthusiasts, academics and FinTech proponents argue regulation could bring some benefits to the cryptocurrency space, other libertarians like Roger Ver, Andreas Antonopoulos and Jimmy Song argue it makes little sense to add the law of man to a protocol governed by mathematics.

Alongside this topic, and intrinsically connected to it, are open-ended governance models and how they can completely change how all organisations operate.

Yes, even financial institutions.

What is governance?

In cryptocurrency, governance is usually the process by which a set of transaction and block verification rules are decided upon, implemented, and enforced.

An example is Bitcoin where individuals adopt rules for verifying that payments they received in transactions and blocks fit their subjective definition of “Bitcoin”. If two or more individuals adopt the same set validation of rules, they form an inter-subjective social consensus.

Of course, social consensus dictates which version of the protocol miners, developers and users should use to build upon. Because most cryptocurrencies are open-source, it means its code can be copied, although the network effects cannot.

Governance represents all action taken by either miners, developers or users that defines which version is the “right” version of a given cryptocurrency protocol. That’s why we could have exactly alike implementations of any given cryptocurrency, with completely alternative network effects and prices.

Governance is key because it defines how a project develops and its acceptance towards more contributors, making it effectively resilient against “byzantine” actors.

How does governance work in decentralised projects?

What open-governance models enable are a set of checks and balances that can be changed by anyone in the community, given enough resources, voting power or network support.

There’s many projects with quite open-governance models that have worked close to perfection in terms of adoption, scalability, and network effects. Still, some experts argue there are gains to be made from centralising some of the decision-making process, within industry experts or by applying the rule of man.

Is it possible to have completely open-governance models and still run a normal business? What has recent experiments taught us?

Open-ended governance

The way open-ended governance models work is usually by leveraging two key features: reputation and/or incentives.

  1. Reputation: some organisations like Wikipedia or Linux allow anyone to contribute to its products, even though there’s some degree of centralisation within each organisation. These organisations base their decision-making process on reputation, so usually in the number of contributions and quality of each contribution, by any given contributor. Other organisations like OpenStreetMaps (OSM), IPFS, or TOR are completely decentralised and no one really owns the product or platform. In the cases I mentioned there are checks and balances in place, in case bad actors take over some parts of the network. However, it’s up to the entire community to safeguard the development and maintenance of those services as there is no one really in charge. Bitcoin, Ethereum and other decentralised cryptocurrencies have the same governance model as the last group of organisations.
  2. Incentives: allow for network contributors to gain value from participating. In Bitcoin, Ethereum and other cryptocurrencies that can be by either mining, developing or buying/selling, as contributions are associated to receiving a reward in the form of cryptocurrency. In other projects, the incentive may be non-financial. For example, in OSM users contribute in order to improve the overall maps. They later use those maps to navigate. The more reliable the information is, the more accurate the maps are, meaning users have an incentive to add accurate inputs.

Besides BTC, ETH and some other decentralised projects, there’s still few projects and companies that are really pushing forward to implement completely open-ended governance models. Interestingly enough, it seems they can be applied to mostly anything. One of the best examples of how the right incentives, reputation, and checks and balances, can positively impact the decision-making process can be seen in this open-ended Pokémon game.

I don’t want to spoil the fun out of reading the piece, but the end result shows it is possible to achieve a common goal by allocating resources efficiently – which, by the way, is why firms are created even without a central coordinator.

If that does not completely rock your world, I honestly do not know what will.

Can you imagine when applications like Aragon, Civil, uPort and others that allow anyone to create a fully-decentralised organisation, become adopted by the mainstream internet users? It could create truly global companies without the hassles of geographical location, barriers to entry and value appropriation by governments!

Oh man. The future is, indeed, bright!

What next?

Want to find out more about different types of governance and consensus? Read our dedicated series! 

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