Importance Of On-chain Governance In Crypto Management

The entire blockchain network and cryptocurrency have protocols and mechanisms that guide them. They are called the blockchain Governance protocol.

The Governance protocol is used in decision making, the voting process, and updates in blockchain technology.

The On-chain governance protocol solely makes decisions online and is based on Consensus.

The importance of On-chain governance includes a reduction in hardneck fork threat and chain split, a quicker turnaround time for changes, and others.

The blockchain network is decentralized. Decision-making and changes to the protocol require consensus agreement for all parties involved.

To effect the change in a blockchain network, there is the need to adhere to blockchain governance.

Blockchain governance is a structure or protocol that deploys mechanisms to make decisions on project direction, monitor ongoing updates, and ensure that all blockchain transactions are going smoothly.

The blockchain governance mechanism could either be On-chain or off-chain. You should know that Blockchain governance is an essential practice in crypto management, regardless of the mechanism.

The ability to keep a watch over your digital asset and make decisions on which asset to buy and hold as an investment is what crypto management entails.

This article will examine the on-chain governance mechanism and its benefit in crypto management.

Let's dig in!


What Is On-chain Governance?

---

Making governance decisions for blockchain is an elaborate process, and Blockchain technology is open-source and decentralized.

When it is time to make decisions and introduce updates, who decides what update should be accepted or rejected? Who are those in charge of making the governance decisions? How and when do you decide to change the protocol and mechanisms that run the blockchain technology?

These are some questions that the blockchain governance mechanism tends to solve.

The blockchain governance mechanism comes in two types; on-chain and off-chain.

On-chain governance includes the systems and protocols for managing the cryptocurrency blockchain and effecting changes when the need arises.

In On-chain governance, developers of the blockchain network come together and propose changes through code updates. After that, each node with the voting power will vote on whether to accept or reject the proposed changes.

The decision-making, voting, and all other activities in this type of governance mechanism occur online.

On-chain governance for blockchain technology takes place on the Proof of stake blockchain. To participate in the governance procedure such as voting, you must be a holder of the blockchain’s native coin.

For example, EOS is a blockchain platform that uses on-chain governance. If you are an EOS coin holder, you are eligible to choose the network transaction validators, and you can also delegate your voting power to another EOS coin holder.

We shall look at the importance of On-chain governance in crypto management at this juncture.


Importance Of On-chain Governance

---

The On-chain governance protocol has several advantages compared to the Off-chain protocol. Some of the importance include;

Decentralized Form of Governance
On-chain governance mechanisms further corroborate the decentralized nature of blockchain technology.

To make changes to the blockchain technology using an On-chain Governance, you do not have to go through any authority or centralized protocol.

This governance mechanism allows each node and miners to vote on the proposed change. There is room to make amendments to the changes by developers before voting on whether to accept or reject the changes.

All decision-making and voting processes in On-chain governance rely on the community for consensus decision-making.

Quicker Turnaround Time For Changes
Reaching a consensus agreement in On-chain governance takes less time among stakeholders than in the informal governance system.

The voting mechanism in On-chain governance is faster because you can see test results for implementation via a code update. You do not have to wait for a more extended period to see the result of voting among stakeholders.

Once there is a consensus to accept a change in protocol or adopt an update, the blockchain developers will make the changes immediately. Should there be divided opinions, the voting process will occur, and results will be immediately made available online.

Reduction In Hard Fork Threat And Chain Split
Before the changes can take effect in On-chain governance, all nodes need a consensus. This Consensus across the board makes it hard for a hard fork to occur.

Hard forks mostly occur when nodes and miners of the new blockchain version do not accept the old version.

It could be that the new miners do not agree with the changes or cannot reach a consensus with the old miners to change the blockchain protocol.

Sometimes, Fork occurs when two parties do not agree on changing a blockchain platform, and this disagreement will lead to a split, and an alternative chain will emerge.

Since On-chain governance has economic incentives and rewards for nodes participating in the voting process, they always reach a Consensus, and a split or hard Fork rarely occurs.


Conclusion

---

The governance mechanism in crypto management is similar to the rules of engagement in the crypto space. The governance protocol helps to manage and effect changes in blockchain technology.

Some blockchain platforms, such as Bitcoin and Ethereum, require updates at every interval. These updates will ensure scalability and help to strengthen the security features of these digital assets.

Therefore, miners need to reach a consensus, especially on updates that benefit all crypto-assets holders and stakeholders.

To ensure that the nodes and stakeholders with voting power reach a quick consensus, On-chain governance is the best governance protocol.



Author: Valentine A., Gate.io Researcher
This article represents only the researcher's views and does not constitute any investment suggestions.
Gate.io reserves all rights to this article. Reposting of the article will be permitted, provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.