Blockchain Governance; what it is and why it matters

Decentralization Over Governance

One of the essential elements of a cryptocurrency is decentralization. Decentralization is distributed decision-making and control across the network’s participants. It is crucial for a network’s security because if a single party controls most of the network, they can manipulate the data on the blockchain. With a decentralized network, the challenge becomes: how does a system govern itself? Governance is deciding what to do and how to pay for it; crucial to a cryptocurrency’s sustainability and longevity.

Governance Failure

A famous governance failure in the crypto space is the hard fork that created Bitcoin Cash. In 2017 there was a deep community disagreement on a proposed protocol update, Segregated Witness (SegWit). SegWit addressed Bitcoin’s scalability concerns by reducing the size of each transaction, thus, allowing more transactions to fit inside a block.

Bitcoin Cash rejected the protocol update and ultimately split the project and its backers. A divide like that in the network can create turmoil in the ecosystem, harming its sustainability. And hard forks are not necessarily a cure to existing problems. A year later, Bitcoin Cash experienced another hard fork and split into Bitcoin Cash and Bitcoin SV.

What Can Cause Governance to Fail

Governance fails because of unsustainable systems to decide who pays and for what. One thing that jeopardizes sustainability is exclusive voting to decide on protocol changes. An example is, in Bitcoin, only the miners can vote on protocol changes. Miners vote by using their CPU power to accept or refuse blocks with the protocol changes. Unfortunately, most people do not have the resources to become miners, so there is a risk to network decentralization from exclusive voting because you only have a small group of people deciding on significant changes.

Another example that can cause governance to fail is not having decentralized funding. For example, consider a treasury that accumulates a portion of the transaction fees to fund network updates. First, it’s beneficial because it doesn’t rely on outside funding from investors or donors who may influence decision-making. Secondly, the funding can be easily predicted and last as long as people make transactions on the network.

Bitcoin lacks a treasury, so all the network upgrades as made by the core developers rely on organizations, commercial entities, and donations to fund developers. A decentralized network that depends on companies can threaten sustainability because they can decide to stop funding if it is no longer beneficial or go out of business. For example, from 2012- 2014, The Bitcoin Foundation was the only significant funding source and development and is no longer actively funding developers. Other companies that no longer appear to be actively funding developers: Bitmain, Blockchain.info, and BitPay. Click to view more of the current and former Bitcoin funding sources.

In summary: 3 common Governance Problems in Blockchain

  1. Disagreements in the direction of the network (which, at best, can result in a hard fork;
  2. Voting on network changes is exclusive and not available to the majority of the community members;
  3. No decentralized funding system.

How Cardano Solves These Three Governance Problems

Cardano’s governance system is called Voltaire. Voltaire will address these problems with two main components: Project Catalyst and a decentralized treasury system. These components enable community-driven decision-making, voting, and decentralized funding to create a sustainable and lasting network.

Project Catalyst

Project Catalyst is the world’s largest decentralized incubator with over 30,000 participants. In Catalyst, anyone can create a project proposal, get feedback from community members and advisors, and receive funding from the treasury. The proposals range from building decentralized applications (Dapps), creating educational materials, and even improving Project Catalyst itself, making it a self-sustaining incubator. Also, it will be used to vote for changes in network parameters, such as the saturation limit (K) or the minimum transaction fee that will ultimately feed into Voltaire.

Inclusive Voting

Project Catalyst has a very inclusive voting system. For example, to vote in the current funding round, Fund4 voters are only required to hold a minimum of 500 ADA (roughly US$750). Moreover, voting rounds occur every 6-8 weeks, and there are incentives for ADA holders to vote. According to IOHK, the voter incentive is ~10$ a year per 10,000 ADA held in your wallet. So not only is there a low financial barrier to vote, but you get paid a modest amount of ADA. According to IOHK, with these perceived voter benefits, the long-term goal is to achieve 50% voter participation on the Cardano blockchain.

Decentralized Treasury

The second piece to Cardano’s governance system is an on-chain decentralized treasury. No single party or foundation controls the treasury; the community controls it through Project Catalyst. The treasury functions as the funding source for the proposals that the community decides. Currently, the treasury has 477,865,652 ADA (+US$716 million) and is growing. It collects funding from decentralized and sustainable sources: minting new coins and taxation from block rewards. As the number of transactions increases, more funds are added to the treasury to fund network upgrades and proposals, making it a self-sustaining funding source.

If you are interested to learn more about how the treasury works, how it is decentralized, and the sources of funding, read more here.

Final Thoughts

Cardano’s Voltaire, when fully deployed, will have an inclusive and sustainable governance model. Cardano’s governance is more inclusive because it allows anyone to make proposals, give feedback on other proposals, and receive funding. It is also more inclusive of voting on funding proposals. The latest voting round (Fund4) only required ADA holders to have a minimum of 500 ADA in their Yoroi or Daedalus wallets to participate. The treasury model for funding sustains growth because it doesn’t rely on outside financing, and the treasury grows as the network grows. When both a voting and treasury system are in place, Cardano will be truly decentralized, and the future will be in the hands of the community.

Fund4 - Voting Ongoing.

If you registered before June 11th, you have until June 25th to vote.

Over 22,000 wallets registered to vote.

One million ADA available to fund proposals.

280 proposals.

Link on how to register to vote.

Fund5 registration occurs on July 6th.

Are you interested in reading more on Project Catalyst? Check out more from IOHK Blog. Are you interested in creating or giving feedback on Project Catalyst proposals? Create a profile at Ideascale.

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I hope each member of the Cardano community sees the importance, and need for her/his participation. The Cardano Foundation is solving these hard problems by providing convenient tools as well as incentivizing participation. However, all these innovations and hard work means absolutely nothing if you (each community member) or a overwhelming majority don’t participate.

This description of Cardano “governance” completely ignores the process of Cardano Improvement Proposals, as originally described here (emphasis is my own):

To that end, the Voltaire era will add the ability for network participants to present Cardano improvement proposals that can be voted on by stakeholders, leveraging the already existing staking and delegation process.

The narrative put out in this new forum post is nothing like the picture of Cardano governance that was painted last year, particularly in Charles Hoskinson’s videos, in which IOG would over time come to be just another contributing developer.

And now comes this surprising redefinition of Voltaire = Catalyst + Treasury which leaves out any notion of internal accountability, from either IOG or the Cardano Foundation… implying that the whole of governance is provided simply by Ada holders being able to vote on which projects they like.

I wouldn’t want Cardano’s critics to get a hold of what was written above, i.e. an officially signed presentation that Project Catalyst is a complete achievement of blockchain decentralised governance… suggesting that no further improvements to that idea are necessary or would be of any interest.

This might be a good opportunity for Catalyst insiders to explain what “Catalyst Circle” is, since it’s been presented as a leadership council within the centralised Project Catalyst administration. None of us working on CIP standards so far have any official word whether this “Circle” will have any role in the standards development process, since it’s not been documented with any public writing or discussed anywhere beyond insider Catalyst video streams.

Until all these questions are answered I would definitely disagree with the above quote:

… because we have both of these things today, while every aspect of Cardano development is still managed by centralised authorities: with no accountability or visibility to the community beyond what IOG’s more generous & communicative developers choose to share.

I would prefer to say that “Cardano will be truly decentralized” when the community itself has voting and initiative not only into the ecosystem projects chosen but also into accountable standards that govern system incentives, design priorities (order & timeline), visibility, and oversight into what IOG developers are doing.

A simple acknowledgement that the Cardano Improvement Proposals (CIPs) will eventually be “voted upon” (as promised above) and given these proper accountability standards would help bring Cardano closer to level governance pegging with other blockchains like Ethereum whose democratic proposal process has been in place from the very beginning.

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Agreed @COSDpool, also see a lack of mention about Cardano Improvement Proposals and disagree with the statement made in the above article as well. How can we have governance and true decentralization if the community is not able to make suggestions for changes and effectively participate in this process? Project Catalyst is important and moving us forward on the path of decentralization, but not including CIPs when talking about Blockchain governance is a massive oversight in my opinion.

Making change effectively to me means that all parties in the CIP process, the engaged Cardano community, CF and IOG are all able to have deciding power in what is implemented on-chain after the review process is complete. At this point, I see “toolmakers” making proposals and there are bi-weekly CIP editor meetings that do not involve a whole lot of people.

Furthermore, I was recently reminded by the Cardano Foundation CIP editing chairperson and project manager that even when there are great ideas by the community that receive support from CF and others to merge the request at the end of the day it doesn’t have any real effect.

Hey Ron - As a reminder the CIP process is intently disjoint from the Cardano chain itself - so that it cannot act as a “control” mechanism. That also means that, for right now (as IO is the main developer of the effort), a CIP might be merged that IO does not implement or abides by.

From my perspective, the CIP process is one of the keys to Blockchain governance and without the community having a real say in what changes are implemented this is not truly decentralized as mentioned in the article above.

Voting must exist not only for funding of projects from a community treasury, but also for network changes - which at this point is exclusive and not available to the majority of the community. Literally Number 2 in the referenced 3 common Governance Problems in Blockchain above.

Yes, this takes time, but why isn’t more emphasis being placed on engaging the Cardano community in the CIP process? Why isn’t it mentioned at all in this article? This is concerning to me as we are creating a Catalyst Circle that was originally intended to make a decision on a CIP. Here’s a brief explanation of the Catalyst Circle here:

Hey all wanted to provide an update to the latest we have in regards to forming a community consensus layer that any proposed protocol and parameter changes must pass through before IOG (IOHK) is permitted to implement any Cardano Improvement Proposals (CIP’s).

A few weeks ago we (SPOCRA) were contacted by a 3rd party group that has a contract with IOG to form a counsel or decision body they are calling the Catalyst Circle, which they are envisioning to be made up of 7 - 12 selected representatives from the Cardano community responsible for making a decision on a CIP. The contract was made with a group called Governance Alive, which is a company as well as a community of individuals that work with organizations and groups to help and teach others how to build self-governing systems. The Catalyst Circle idea was designed to be an experiment or pilot run of what a community decision body could potentially be and possibly evolve into a governance layer as we move into the Voltaire era.

More info can be found at their website: https://www.governancealive.com/

We (SPOCRA) were engaged to help Governance Alive (GA) put together the catalyst circle, which for this particular contract would be responsible for making a decision on a CIP involving a parameter change. The experiment would involve the community selecting representatives from all parts of the Cardano ecosystem and all selected members of the circle consenting to the proposed changes (CIP); albeit changes deemed smaller in scope and impact for this experimental trial run, i.e. most likely a change to the minimum fixed fee parameter - actual CIP yet to be determined.

For anyone interested in getting involved in the Catalyst Circle here are the slides presented by IOG during the last Townhall with links on the last slide for voting/ nomination instructions. Deadline is end of day edit Monday 6/28/21 23:59 UTC by the way if you are interested!

Please note, after sharing the quoted information the initial Catalyst Circle prototype has been changed to act in the authority of consulting/ advisory role with more formal authority being gained over time if this experiment proves successful, see slides in above link for more information.

It’s great that we are moving along the path to Blockchain Governance, but this article leaves me asking more questions.

  • When is the right time to open up the discussions being held in smaller circles about the CIPs with IOG and the wider Cardano community for on-chain changes?

  • Why not share the research being done and enable the community to become more active participants in the CIP process? A more prepared SPO base would make more sense in my mind and make us actually feel like first class citizens of the Cardano community. Shouldn’t that be a priority?

  • Will the voting include more than just decisions on treasury funding? Why not start these discussions now?

  • There is already some great CIP work being done by the community. If these are merged how long will it take IOG to commit them or will they even acknowledge the work being done at all?

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Hi,

With regards to Catalyst Circle - I touch upon that sentiment in this article that can help understand more its semantics: Catalyst Circle Nominations & Elections - Form Leadership Layer For Cardano (v1)

What makes you feel there are Catalyst insiders?

thanks @danny_cryptofay … I was happy to see your post come out 3-4 hours after what I wrote above. @DecentralizedReality’s later comment in this thread, suggesting that Catalyst Circle’s original authority mandate was toned down a bit, was also helpful.

If Catalyst has ever posted web pages (as strongly opposed to the search-unindexable Google Docs) or summaries of its meetings, transcripts, tables and rounds of winners and voting, in a way the the public can see it at a high level (keeping proposals themselves confidential of course), then please let me know and I will not only stand corrected but look forward to becoming more involved.

Otherwise, according to my experience in the Fund 2 competition you’ve got to invest a massive amount of time digging through the specialised & unwieldy Ideascale forum and attend days’ worth of regular video meetings to have any idea what is going on. That’s a massive amount of time to commit to a system that tends to select its own favourites depending on how strongly they endorse the platform, as well as making the medium at least as important as any message it might carry… i.e. a bureaucracy.

In short: if Catalyst were a more open platform (and again, I’d appreciate some links & references that will prove my perception wrong about that), there couldn’t possibly be a perception of an “outside” or “inside.” Lacking that openness, any system producing its own ruling council would be called government, not governance.

1 Like

Appreciate your response.

Few key assumptions to align. I found out about this post - literally - today. Hence, why I participated.

To be fair - there was some confusion initially inserted when Governance Alive first approached ecosystem members and it wasn’t properly articulated. The intention. I think the article I published last week outlines that intent more precisely I hope.

In terms of ability to tap into the process, I think it comes second to none almost in the entire ecosystem presently. Obviously - I am biased. But few resources to help you started that I frequently run by. Have you had a chance to see some of my tweets? Here is every minute of all recordings (remember all THs are also live streamed to YouTube via official IOHK account) + included slide decks. I also managed to start time-stamping THs. That could be useful?

CATALYST THs Fund 1 Town Hall 1 n/a Rewatch Recordings
Fund 2 Town Hall 2 Sep 16, 2020 Introducing Project Catalyst - an experiment in community innovation - Crowdcast
Fund 2 Town Hall 3 Sep 21, 2020 Introducing Project Catalyst - Q&A session with Dor Garbash - Crowdcast
Fund 2 Town Hall 4 Sep 23, 2020 https://www.crowdcast.io/e/project-catalyst-weekly-4
Fund 2 Town Hall 5 Oct 7, 2020 https://www.crowdcast.io/e/project-catalyst-weekly-5
Fund 2 Town Hall 6 Oct 21, 2020 https://www.crowdcast.io/e/project-catalyst-weekly-6 Town Hall Tweets
Fund 2 Town Hall 7 Oct 28, 2020 https://www.crowdcast.io/e/project-catalyst-weekly-7 Twitter Recap old account
Fund 2 Town Hall 8 Nov 4, 2020 https://www.crowdcast.io/e/project-catalyst-weekly-8 Twitter Recap old acc.
Fund 2 Town Hall 9 Nov 11, 2020 https://www.crowdcast.io/e/project-catalyst-weekly-9 Twitter Recap old acc.
Fund 2 Town Hall 10 Nov 18, 2020 Project Catalyst weekly town hall and Q&A #10 - Crowdcast Twitter Recap old acc.
Fund 2 Town Hall 11 Nov 24, 2020 Project Catalyst weekly town hall and Q&A #11 - Crowdcast Twitter Recap old acc.
Fund 2 Town Hall 12 Dec 2, 2020 Project Catalyst weekly town hall and Q&A #12 - Crowdcast Twitter Recap old acc.
Fund 2 Town Hall 13 Dec 11, 2020 Project Catalyst weekly town hall and Q&A #13 - Crowdcast Twitter Recap new acc.
Fund 2 Town Hall 14 Dec 16, 2020 Project Catalyst weekly town hall and Q&A #14 - Crowdcast Twitter Recap new acc. Slide Deck
Fund 3 Town Hall 1 Jan 6, 2021 Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap new acc. Catalyst Fund3 Townhall #1 - Google Slides
Fund 3 Town Hall 2 Jan 13, 2021 https://www.crowdcast.io/e/project-catalyst-fund3-2 Twitter Recap new acc. https://docs.google.com/presentation/d/1DQIXXW196I8QOJDNMt_GtP0O3CYDS6Fk1Yg4b2FvzyA/edit#slide=id.gb55b0398fc_0_
Fund 3 Town Hall 3 Jan 20, 2021 https://www.crowdcast.io/e/fund3-3 Twitter Recap new acc. Catalyst Fund3 Townhall #3 - Google Slides
Fund 3 Town Hall 4 Jan 27, 2021 @6PM UTC Project Catalyst Fund3 weekly town hall and Q&A #4 - Crowdcast Twitter Recap new acc. Catalyst Fund3 Townhall #4 - Google Slides
Fund 3 Town Hall 5 Feb 3, 2021 @6PM UTC Project Catalyst Fund3 weekly town hall and Q&A #5 - Crowdcast Twitter Recap new acc. Catalyst Fund3 Townhall #5 - Google Slides
Fund 3 Town Hall 6 Feb 10, 2021 @6PM UTC Project Catalyst Fund3 weekly town hall and Q&A #6 - Crowdcast Twitter Recap new acc. https://docs.google.com/presentation/d/1UQb88pdqoyPYR8Rx9g5t53uJ3WRdGhOWxQUoU--PeE0/edit#slide=id.gbbe7b31780_0_2139
Fund 3 & 4 Town Hall 7 Feb 17, 2021 @6PM UTC Project Catalyst Fund4 weekly town hall and Q&A #1 - Crowdcast Twitter Recap new acc. Catalyst Fund4 Townhall #1 - Google Slides
Fund 3 & 4 Town Hall 8 Feb 24, 2021 @6PM UTC https://www.crowdcast.io/e/fund4-2 Twitter Recap new acc. Catalyst Fund4 Townhall #2 - Google Slides
Fund 3 & 4 Town Hall 9 Mar 3, 2021 @6pm UTC https://www.crowdcast.io/e/fund4-3 Twitter Recap IO acc. Catalyst Fund4 Townhall #3 - Google Slides
Fund 3 & 4 Town Hall 10 Mar 10, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund4 Townhall #4 - Google Slides
Fund 3 & 4 Town Hall 11 Mar 17, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund4 Townhall #5 - Google Slides
Fund 3 & 4 Town Hall 12 Mar 25, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund4 Townhall #6 - Google Slides
Fund 4 & 5 Town Hall 1 - Brainstorm Mar 31, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund5 Townhall #1 - Google Slides
Fund 4 & 5 Town Hall 2 - Submit April 7, 2021 @6pm UTC https://www.crowdcast.io/e/fund5-2 Twitter Recap IO acc. Catalyst Fund5 Townhall #2 - Google Slides
Fund 4 & 5 Town Hall 3 - Refine April 15, 2021 @6pm UTC https://www.crowdcast.io/e/fund5-3 Twitter Recap IO acc. Catalyst Fund5 Townhall #3 - Google Slides
Fund 4 & 5 Town Hall 4 - Finalize April 20, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund5 Townhall #4 - Google Slides
Fund 4 & 5 Town Hall 5 - Assess - week 1 April 27, 2021 @6pm UTC https://www.crowdcast.io/e/fund5-5 Twitter Recap IO acc. Catalyst Fund5 Townhall #5 - Google Slides
Fund 4 & 5 Town Hall 6 - Assess - week 2 May 5, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund5 Townhall #6 - Google Slides
Fund 4 & 5 Town Hall 7 - Assess QA - week 1 May 12, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund5 Townhall #7 - Google Slides
Fund 4 & 5 Town Hall 8 - Assess QA - week 2 May 19, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund5 Townhall #8 - Google Slides
Fund 4 & 5 Town Hall 9 - Vote Prep May 26, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund5 Townhall #9 - Google Slides
Fund 4 & 5 Town Hall 10 - F4 Vote Reg - week 1 June 2, 2021 @6pm UTC Project Catalyst weekly town hall and Q&A - Crowdcast Twitter Recap IO acc. Catalyst Fund5 Townhall #10 - Google Slides
Fund 4 & 5 Town Hall 11 - F4 Vote Reg - week 2 June 9, 2021 @6pm UTC Project Catalyst Town Hall - June 9th - YouTube Twitter Recap IO acc. Catalyst Fund5 Townhall #11 - Google Slides
Fund 4 & 5 Town Hall 12 - F4 Voting - week 1 June 16, 2021 @6pm UTC Project Catalyst Town Hall - June 16th - YouTube Twitter Recap IO acc. Catalyst Fund5 Townhall #12 - Google Slides
Fund 4 & 5 Town Hall 13 - F4 Voting - week 2 June 23, 2021 @6pm UTC Meeting Registration - Zoom Twitter Recap IO acc. Catalyst Fund5 Townhall #13 - Google Slides

Granted - I can always do more. But you can find a wealth of information - I am always available for a chat or discussion. Especially, if it teaches me how to get things better next time.

Some other useful channels where loads of good information gets presented. Check it out:

:mega: Announcements only: Telegram: Contact @cardanocatalyst
:movie_camera: Rewatch past town-halls: https://bit.ly/2UxT9Uv
:bulb: Browse insights, ideas, and proposals: http://cardano.ideascale.com
:speech_balloon: Join main Telegram group: https://t.me/ProjectCatalystChat

:stadium: Go deeper with Catalyst Discord: https://discord.gg/2RnUtK8
:nerd_face: Become Community Advisor/Mentor: https://t.me/CatalystCommunityAdvisors
:woman_scientist: Join Proposal Owners: https://t.me/catalystproposers

:bug: Help find bugs & test: https://t.me/catalystdryruns
:gear: Get lost in data: https://bit.ly/ProjectCatalystDashboard

4 Likes

Hey all,

Wanted to drop in briefly and thank you guys for your solid and very valid builds and comments.

We fumbled the ball in publishing this draft. It was rushed and shouldn’t have been published. Whether it’s about CIP, Catalyst circle, or the intricacies of how CF and IOG are part of the governing ecosystem of Cardano: there were too many white spots in this piece.

I apologise for this.

So we’re going to edit this piece, make sure the topic of governance is addressed more completely and more nuanced.

(Naturally, we’d welcome your comments and builds on that piece, too.)

Best,

Sidney Vollmer.

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