How Governance Tokens Capture The Essence Of Decentralization
What does it mean to be decentralized?
The textbook definition of decentralization is the process by which the activities of an organization, particularly those regarding planning and decision making, are distributed or delegated away from a central, authoritative location or group.In other words. Decentralization means that not a single entity or individual has full control over a network.
The benefits of decentralization
Decentralization allows for a trustless environment, more network security, a community-first approach, and removes the risk for a single point of failure. Let’s use Bitcoin as an example. Bitcoin is a peer-to-peer currency that has no middle man. There is no bank or trusted third party required to settle a transaction. You may be wondering, with no company or individual controlling the network how can the network evolve and improve if it needs to? The answer to that question can be captured in a single word — Governance.
The idea of governance
Governance is a collective action that seeks out the best direction for a group of individuals. This concept has been around since the dawn of time. We see it in every country, company, and now we are seeing it in our lines of code. Governance plays a crucial role in the direction and success of a token. It is a norm for a company to have a board of directors and an internal chain of command to make the decisions and decide the fate of the organization. What crypto-networks are doing differently is taking a fully transparent approach to growth and allowing the public to have a say in the direction of the company. Token holders, developers, and miners can communicate with one another and come up with proposals that will improve the network. Governing takes place either on-chain or off-chain.
On chain vs Off chain governance
Off-chain governance is when decisions are discussed off the platform. Whether that be in chatrooms or through email, developers, miners, and holders propose and decide changes that can be made to the protocol. Bitcoin has an off-chain governance approach. Developers communicate through a mailing list and maintain Bitcoin improvement proposals where they can contribute their ideas. Ethereum…
