Blockchain Use Cases: Governance

A few years ago, blockchain technology was only associated with cryptocurrencies and decentralized finance. To many people, blockchain had no real-world use case and would likely benefit just a few of the world’s population.

Today though, blockchain technology has proven helpful in virtually every sector that concerns humans, including governance. Transparency, immutability, and decentralization are the main features that make blockchain a suitable solution to governance problems.

Since blockchain technology has many unique features that are useful in e-voting, storing e-records, and tracking data, many nations have considered implementing this technology in their governance models. Undoubtedly, we are more confident of the blockchain revolution in governance than ever.

What is Blockchain Governance?

Blockchain governance refers to making decisions using smart contracts and other blockchain-based tools. This allows for decentralized control and decision-making, unlike traditional centralized systems, where a single entity or group controls the decision-making process.

On-chain governance allows for a more democratic and decentralized way of managing a blockchain network, which can lead to improved transparency, trust, and security for organizations.

When it comes to decision-making, every organization needs to choose between using private or public blockchains. A private blockchain would be more appropriate if the organization wants to keep its information private and secure. However, a public blockchain would be suitable for organizations that wish to create a more open and transparent environment.

Blockchain Governance in Organizations

On a macro scale, organizations can benefit from on-chain governance by allowing decentralized network control. This can improve transparency and trust in the network, as all stakeholders have a say in decision-making. It can also increase the network’s security, as decentralized control makes it more difficult for a single entity to take control or make malicious changes to the network.

On a micro-scale, organizations can use on-chain governance to manage specific aspects of their operations. For example, a decentralized autonomous organization (DAO) can use on-chain governance to manage its treasury, with proposals and on-chain voting to ensure transparency and fairness.

The Role of DAOs in On-chain Governance

Blockchain makes it possible for decisions to be automated using a smart contract. Thus, rather than relying on humans to make decisions, a set of rules and protocols encoded in the smart contract execute the decisions automatically. Decentralized Autonomous Organizations (DAO) are digital organizations that utilize on-chain governance. A DAO is highly efficient but could also be rigid and inflexible in decision-making.

In a DAO, decisions are made through a process of on-chain voting. Token holders propose and vote on proposals using their tokens as a form of weight. The more tokens a member holds, the more weight their vote carries. The proposals that receive a majority vote are then implemented on the blockchain. DAOs are decentralized, and the rules and protocols encoded into the smart contract determine how the organization is run.

One example of a decentralized autonomous organization is MakerDAO, a decentralized lending platform. MakerDAO governs the stability of the Dai stablecoin through a collateralized debt position system. Holders of the MKR token can vote on proposals that affect the stability of the Dai token.

Another example is MolochDAO, a decentralized organization that aims to fund and manage the development of Ethereum infrastructure projects. Members of the organization, typically Ethereum holders, propose and vote on proposals using their Ethereum as a form of weight. The proposals that receive a majority vote are then funded using the organization’s treasury.

Benefits of Decentralized Autonomous Organizations

• DAOs are transparent and trustworthy.
• DAOs are very efficient. They can function all around the clock since they do not need human intervention.
• Unlike centralized systems, where single entities or groups control the decision-making process, governance is decentralized.

Limitations of Decentralized Autonomous Organizations

• DAOs are too rigid. Decisions made in the governance process can hardly be reversed.
• The barrier to entry is high, and the members need to have a good understanding of blockchain technology to participate.

Blockchain Governance on a National Scale

Blockchain technology has several benefits when implemented in governance on a macro scale. Below are some benefits of blockchain adoption for governments globally.

Blockchain can Curb Corruption in Governance

Blockchain technology offers a level of transparency that no other technology affords. Since information stored on-chain is accessible by anyone, corruption and deviousness amongst governmental systems can be curbed.

In addition to its transparency, blockchain has a permanent or tamper-proof record-keeping framework that is crucial in governance. Financial records can be stored permanently and immutably on the blockchain and verified by all.

The records of government officials can also be stored on-chain. Blockchain records could verify or nullify accusations when government officials are suspected of mishandling funds.

Blockchain Enables Secure Identity Management

With Distributed Ledger Technology (DLT), governments can securely register citizens’ identities without risking data breaches. One significant challenge faced by governments is handling data securely. In this digital age, reports of cybercrimes and data breaches have been as common as sand in a desert. But DLT does not utilize a central body for record collection and preservation and could protect users from breaches.

Additionally, blockchain’s distributed ledger technology makes data verification seamless. Data need not be compromised before it can be verified. Thus, rather than keeping records of individuals that expose personal data, personal records can be stored on the blockchain in an encrypted format. This protects users effectively.

Blockchain Technology is Cost Effective

Blockchain removes intermediaries, which is a massive advantage for the governments of many states. Since governments are constantly looking to cut down expenses, blockchain can serve as a unique means of managing governmental funds.

Governments can utilize smart contracts built on blockchains to execute tasks. Further, smart contracts offer a level of automation and accuracy that imperfect humans fail to meet sometimes. Smart contracts do not require constant servicing or remuneration for executing instructions.

Admittedly, smart contracts and blockchain cannot be integrated into every nook and cranny of governance. That would utterly disrupt society. However, many sections in the governance system could use smart contracts to execute tasks speedily and accurately while saving costs.

Blockchain Fosters Transparency in Fund Allocation

Every year, governments issue funds to various departments and sectors of the economy. It is no news that funds are easily mishandled by officials in charge or left unaccounted for. With the integration of blockchain technology in fund allocation, fund disbursement can be transparent, and finances can be publicly tracked. This can eliminate money laundering too.

Additionally, utilizing blockchain for financial transactions can reduce excessive fees paid to intermediaries in disbursement.

Blockchain-based Solutions Needed in Democracy

Should blockchain-based solutions be integrated into the voting system, manipulation in governance will decline. Blockchain technology could also make e-voting the answer to a more inclusive electoral system. Fundamental problems existing in current electoral systems are registration integrity and accessibility. Blockchain can solve the problem of integrity.

Interestingly, in 2018, West Virginia implemented a blockchain-based voting system for its pilot program. This enabled military personnel overseas to vote securely in the midterm elections. The system enabled secure and transparent voting and could be used in other elections.

Perhaps, even more interestingly, was the mild integration of blockchain in the 2020 US presidential election. Although no blockchain system was used during voting, the election results were recorded on-chain. The Associated Press (AP) utilized “OraQle,” a product of the Everipedia blockchain, to make that happen. That marked the first time a blockchain protocol would be used to publish the results of an election in the United States.

Limitations of Blockchain Governance

Although blockchain seems to be the foremost solution to many organizational and governmental problems, it still has some limitations. Here are some of the limitations of adopting blockchain governance.

Blockchain Complexity

The technology behind blockchain can be complex and may require a learning curve for those unfamiliar with it. Although blockchain has existed for over a decade, many still find blockchain procedures strange. Implementing blockchain-based systems in organizations will demand intensive sensitization and gradual implementation, which could be time-consuming.

Blockchain has Limited adoption

For blockchain to be effective in governance, it must be widely adopted. This can be challenging, as it requires buy-in from multiple stakeholders and may require significant resources to implement.

Blockchain has Regulatory challenges

There are still regulatory challenges and uncertain legal frameworks surrounding the use of blockchain in governance, which can make it difficult to implement.

Scalability

While the use of blockchain in governance has the potential to bring about significant improvements, it may not be feasible for all organizations due to scalability issues. Admittedly, there are more scalable blockchains today than ever before. But even the most scalable blockchain networks still have limits.

Governance in Crypto Projects

Governance in cryptocurrency projects refers to the process by which decisions are made about the direction and management of the project. This can include decisions about developing new features, allocating tokens, and the project’s overall direction.

In many cryptocurrency projects, governance is decentralized and involves the participation of a community of stakeholders. These stakeholders may include developers, investors, users, and other interested parties.

One common way that cryptocurrency projects handle governance is through the use of voting systems. These systems allow stakeholders to vote on proposals and decisions related to the project. The results of these votes are then used to guide the project’s direction.

Overall, the governance structure of a cryptocurrency project can vary significantly depending on the specific project and the community’s needs. Some projects may have a decentralized governance structure, while others may be more centralized. It is important for cryptocurrency projects to have a clear and transparent governance structure to maintain the trust and confidence of stakeholders.

Crypto projects have a governing system that is open for all to join. Most times, the governance tokens used to vote for decisions are different from the native token of the project. The majority wins the vote, but the majority is not determined by the number of individual users or wallet addresses voting.

The majority has to do with the number of tokens staked supporting a decision. This means a user can singlehandedly decide for the whole ecosystem as long as that user has more vote tokens to stake than all other participants in the ecosystem put together.

Conclusion

The use of blockchain in governance has the potential to revolutionize the way we approach decision-making processes. From increasing the security and transparency of voting systems to streamlining the management of smart contracts and improving the accuracy and accountability of record-keeping, the use of blockchain in governance can bring significant improvements. While there are still challenges to overcome, the potential benefits of this technology make it worth exploring further.

References

https://academy.binance.com/en/articles/blockchain-use-cases-governance

https://cointelegraph.com/cryptocurrency-regulation-for-beginners/how-blockchain-can-transform-government-sector