Off-Chain Governance

What Is Off-Chain Governance?

In the context of blockchain networks, off-chain governance refers to the decision-making processes and mechanisms that occur outside the blockchain itself.

It involves stakeholders collaborating and competing for control through various off-chain activities and discussions.

A Game of Collaborative Strategies

Off-chain governance in blockchain networks often resembles real-world politics, where different interest groups strive to gain control by engaging in collaborative efforts.

These groups participate in a series of collaboration games to persuade others to support their cause.

Unlike on-chain governance, off-chain governance does not rely on code or smart contracts to enforce specific actions.

Instead, stakeholders consider their own interests in light of the known preferences of other participants.

Shaping Public Blockchains

Many public blockchains, such as Bitcoin and Ethereum, primarily rely on off-chain governance mechanisms.

Significant modifications or proposals undergo extensive discussions among key stakeholders in these networks.

This can include the core development team, other developers, miners, researchers, and the end-user community.

Open online discussions and frequent meetings play a vital role in shaping the direction and decisions of these blockchain networks.

Clarifying Bitcoin Mining Power

Some mistakenly equate the governance power of large mining pools in Bitcoin with actual governance rights.

However, even powerful Bitcoin miners do not possess special governance privileges.

Their primary responsibility is to verify or reject transaction blocks, and their mining power does not directly translate into governance rights.

Ethereum follows a similar governance model to Bitcoin.

It has a core development team led by Vitalik Buterin, highly regarded within the community.

Stakeholders collaborate and make off-chain decisions through various channels.

Core Developers and Protocol Modifications

Core developers typically propose off-chain decisions regarding protocol modifications through formal improvement requests, such as Bitcoin Improvement Proposals (BIPs) or Ethereum Improvement Proposals (EIPs).

These suggestions are often submitted to the project’s official repository, hosted on platforms like Microsoft or GitHub.

Stakeholder Participation

Stakeholders then signal their agreement or disagreement with the proposed improvements through private and community discussions, similar to game theory dynamics.

Core developers assess the willingness of node operators and miners to upgrade their software based on these signals.

In an ideal scenario, a consensus is reached, and the code changes are smoothly implemented. Advanced communication allows stakeholders to stay informed and engaged throughout the process.

In cases of disagreement, stakeholders have two options.

They can attempt to persuade other participants to support their position, or they can choose to hard fork the protocol.

A hard fork involves creating a separate version of the blockchain that either maintains or alters specific aspects of the network according to the beliefs and priorities of the forking group.