Off-chain governance is a type of blockchain governance in which decisions are made informally, away from the primary code base of the blockchain.
What Is an Off-Chain Governance?
In an off-chain governance network, stakeholders compete for control by collaborating in a variety of ways. Discussions on social media, online forums, conferences, and other events are some popular examples of off-chain governance procedures on public blockchains.
Off-chain governance resembles real-world politics in many ways. Various interest groups aim to take control of the system by playing a series of collaboration games wherein they try to persuade everyone else to support their cause. There is no code that ties these groups to precise actions; rather, they determine what is in their best interests in light of the other stakeholders’ known preferences.
Many public blockchains, such as Bitcoin and Ethereum, have a governance architecture that is mostly off-chain. All significant modifications suggested to Bitcoin, for example, are extensively discussed online by important parties. The core development team, other developers, miners, researchers, and the end-user community are all significant players. Anyone is welcome to attend Bitcoin’s core development team’s frequent online meetings.
On closer investigation, Bitcoin appears to have no on-chain governance mechanism. The network lacks a governance token, and while possessing BTC gives you a voice in off-chain conversations, it does not provide you with explicit voting rights. As a result, all conversation and voting take place off-chain
Some people equate huge mining pools’ hash power or mining on Bitcoin with governance power. No matter how powerful a Bitcoin miner is, they have no special governance rights. Their only responsibility is to verify or reject transaction blocks. In other words, your portion of mining power on Bitcoin does not equate to a share of governance rights.
The governance model of Ethereum is very similar to that of Bitcoin. There is a core development team led by Vitalik Buterin, who is widely regarded as a hero by the community, researchers, advisers, and miners.
Let’s take a closer look at how stakeholders collaborate and make off-chain decisions.
Protocol modifications are provided by core developers through formal improvement requests, similar to on-chain governance. Some examples include Bitcoin improvement proposals (BIPs) and Ethereum improvement proposals (EIPs), which are suggestions that are often submitted to the project’s official repository, which is housed on Microsoft or GitHub.
Through private and community conversation, various stakeholders signal their agreement or disapproval for an improvement suggestion, similar to how game theory works. The core developers then assess if node operators and miners are willing to upgrade their software. In an ideal world, everyone agrees and the code changes move seamlessly. Everything is announced in advance, allowing stakeholders to stay up to date.
Stakeholders have two alternatives in the event of disagreement. First, they can try to persuade the other stakeholders to support their cause. If they can’t come to an agreement, they can hard fork the protocol and maintain or change the aspects they believe are important.
Off-chain governance is a solid system that seeks to consider the interests of all stakeholders. However, because decisions aren’t legally binding, influence tends to be concentrated among the core developers and miners.
