How Blockchain Voting Is Supposed to Work (But In Practice Rarely Does)

Blockchain-based voting has long been looked at as a use case for the technology – but as with any nascent application, there are bumps along the way.

In more recent times, the use of on-chain votes has been positioned as a way to avoid acrimonious debates over governance and, in more extreme, cases, network splits like those seen in the bitcoin and ethereum ecosystems the past few years. The idea is that token-holders, by right of their ownership, have a say in the fortunes of a particular network’s technological progress.

Already, decentralized applications (dapps) including MakerDAO and Aragon, along with entire blockchain networks such as Tezos and Cosmos, have already completed multiple rounds of token holder voting enabling key protocol-level changes for their respective projects.

“The market is becoming more mature, and both voting and its discussion are an important step towards the decentralization that is constantly brought up,” affirmed Chief Product Owner of staking service platform Everstake Alexandr Kerya to CoinDesk. “The ability to vote and influence the project’s development is itself a strong advantage.”

At the same time, common concerns such as low voter turnout and “whale” voting – in which one large token holder effectively decides the outcome of a vote – have caused internal governance disputes about the true efficacy of on-chain governance.

Santi Siri, the founder of non-profit Democracy Earth, which created an ethereum-based governance token called Sovereign, argued that “the fundamental problem of blockchain voting today or blockchain governance today is that 100 percent of it is plutocratic.”

Siri told CoinDesk:

“It’s based on whoever has the largest amount of tokens or the largest economic weight. … [Token] holders don’t have any weight at all in the decision-making. The voting is pretty much irrelevant if a single whale can decide the outcome of an election.”

Whale voting

Speaking to the concern of whale voting which did reverse the outcome of at least two out of nine governance proposals on ethereum application Aragon, CEO of developer group Aragon One Luis Cuende told CoinDesk the matter was non-issue.

“I wasn’t surprised at all,” Cuende said. “This whale that bought ANT [tokens], they clearly have a great incentive for Aragon to be successful. I don’t have a problem with them having the decision power that they have.”

The real issue in the mind of Cuende is a matter of liquidity and aligned incentives.

With a high degree of token liquidity, a malicious network attacker could buy up large amounts of Aragon tokens – called ANT – at a moment’s notice, vote in the worst interests of the application and subsequently sell all their holdings immediately thereafter without penalty.

By implementing “lock” mechanisms, as Cuende calls, blockchain-based networks can give greater voting power to those token holders who have staked their assets on the network for a long period of time.

“If you locked tokens for a year or five years, you have more voting power than if you lock your tokens for less,” said Cuende. “It’s incentivising people to think long-term and participate long-term. With that, I would be way more comfortable with the [token holder] voting system.”

For Cuende, there are many improvements to the token holder voting system that can be experimented with that over time will ensure fairer voting outcomes.

Even so, Siri maintains that a plutocracy no matter its form or efficacy “does not work for public infrastructure or the common good.”

“There are things that have an impact on multiple constituencies and not just stake-holders of a single entity but rather something that impacts a much more complex and broader set of interests. Then, a [plutocratic] decision-making process is not a very efficient way of aligning those interests,” Siri said.

Governance dilemma

On one hand, democratic forms of governance, Siri admits, are both complex and often slow-moving. However, precisely for these reasons, Siri argues that a democratic form of governance may be viewed as more legitimate by users and other stakeholders of a blockchain network.

“The use of democratic means can help keep a community together and in the context of blockchains where forking is a very common political practice, if you want to prevent forking, a solution to keep the community together is actually having democratic decisions that guarantee … the highest degree of legitimacy in the outcome of that decision,” Siri argued.

At the same time, such a system places a heavy emphasis on user identity verification which the brightest minds in crypto have yet to find a ubiquitous solution for.

“None of the blockchain networks so far have any formal aspects to addressing identity when it comes to identifying the human participants or users,” Siri said. “So this a very challenging problem actually. Identity is a big word in the blockchain space.”

As such, for the reasoning that democratic systems of governance on a blockchain are still largely in a nascent research phase, Cuende maintains that while imperfect, a simple system of majority token holder voting is the best solution out there for on-chain governance at present.

At the same time, Cuende concedes that it’s not a solution for all blockchain networks, especially those that want to maintain a relatively unchanging codebase.

“There’s arguments that blockchains shouldn’t have on-chain governance by itself since you want them to be immutable,” Cuende told CoinDesk. “There are also arguments for the contrary which is that blockchains are an evolving technology you want to evolve. That’s an open discussion.”

For example, Cuende said that blockchain such as bitcoin would not benefit from on-chain governance mechanisms given that “you don’t want a store of value that changes constantly.”

On the other hand, Cuende argued that other blockchain networks could desperately benefit from plutocratic forms of governance to help speed up decision-making processes about various planned, reoccurring upgrades.

Cuende argued:

“In ethereum, it’s a totally different story…I think ethereum needs to move fast especially these next couple years because there’s a lot of competitors that are trying to eat its cake. So, ethereum needs to move fast. In order to do that, there’s just one way to do it, define some governance mechanism.”

Long-term potential

In the long-run, blockchains in the view of both Cuende and Luis have the potential to radically revolutionize social interaction and organization.

“When it comes to the promise of blockchain in relation to governance, it is a very important promise,” Siri emphasized. “The ability to inspect the interactions that happen in an election [or vote] in a permission-less way brings tremendous amount of transparency to the process of having more fair governance.”

Project lead at bitcoin spin-off project Decred, Jake Yocom-Piatt, added to this saying:

“The reason I think the context for cryptocurrencies is so interesting for governance is that it formalizes what previously had been very tricky to formalize because people are always complaining votes and elections are rigged, whereas with cryptography within a very strong margin you can demonstrate something was not faked or fabricated.”

Head of core community at leading decentralized finance application MakerDAO, Richard Brown, also agreed that governance on the blockchain while being “a capital H hard problem” presents unique possibilities that traditional forms of governance wouldn’t have access to.

“What I’m most interested in are audit trails and visibility and tracking behavior [on a blockchain] over time in a way that’s immutable,” highlighted Brown about the strengths of putting governance systems on a blockchain.

To these points, Cuende concluded:

“It’s less about blockchain governance and more about an open source way of organizing.”

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