Recently, Ethereum got an upgrade to address its costly gas fees and network inefficiencies. The ‘London Upgrade‘ (EIP 1559) went live on August 5th, 2021 to no small fanfare. The upgrade was initially planned for earlier in the year, but technical delays and indecision over the upgrade among Ethereum’s community members stalled the initiative.

Ethereum is not the only crypto getting an upgrade. The Bitcoin network is expected to have its first update since 2017 later this fall, currently slated for November. Bitcoin’s Taproot update will introduce new elements for smart contracts on bitcoin and a new mechanism for sending money to multiple parties from one address.

What Ethereum and Bitcoin both have in common with these upgrades is the long and arduous process of reaching a consensus around what exactly to do and how. At first glance, one might say that this sounds a lot like the rowdy back and forth in the parliaments of representative democracies. There is a large body bickering over what to do with little to show for it with billions and billions of dollars at stake. However, a critical difference is that representative democracies contain parliamentary rules to guide deliberations. They also have elected representatives to engage in public policy on behalf of constituents.

In the Ethereum and Bitcoin worlds, there is no defined parliamentary apparatus. There is no governance. Decisions are made mainly by elite technical teams, referred to as core developers, that drive technical roadmaps and maintain the open-source networks. Furthermore, there is no mechanism to introduce the new features without creating a hard fork once an upgrade is decided. A hard fork is when a blockchain network has to completely adopt a new version of its software, creating havoc across the ecosystems using that crypto network.

Part of the revolution of blockchain itself is the organization of society. It is, at its most basic element, a technological tool to organize self-governance among constituents. But as these crypto networks grow and interest in what they can do for society moves beyond niche use cases, and into mainstream finance and consumerism, one must ask: Where is the governance? Without formal governance mechanisms, networks are susceptible to exploitation, interference, and potential nefarious actions by core team members.

A day after Ethereum’s update, a third crypto network also instituted a significant update. The Tezos network, a world computer with smart contracts, NFTs, and decentralized finance, went live with its latest approved upgrade, Granada, on August 6th, 2021. However, Tezos’ upgrade has gone down a different path. Tezos includes formal rules for governance that allow for upgrades to the network without the need for a disruptive hard fork. This governance mechanism, referred to as ‘on-chain governance,’ is one of the most important features for a blockchain but few networks have on-chain governance and fewer still use it well.

The importance of on-chain governance has been well documented, even by co-founders of Ethereum themselves. Vitalik Buterin, talking about Tezos’ governance, once said, “I am sure that on-chain governance can provide very substantial benefits if it is used carefully and strategically.”

Gavin Wood, who went on to found blockchain network Polkadot, said, “If you do it this way [on-chain governance], then you can stay ahead of the curve. You can stay on top of technological development. And it won’t be too long before people realize, maybe we should make a blockchain that does that as well. But as far as I know, at the moment, Tezos is the only one that kind of has this kind of functionality.”

The on-chain governance used by Tezos is critical for pushing upgrades without forks. Tezos’s on-chain governance allows networks to adopt more upgrades faster, allowing networks with this feature to stay ahead of competitors and integrate new efficiencies demanded by their users. It also increases the ease of executing upgrades from a technical standpoint. Putting proof to the approach, Tezos’ next upgrade–Hangzhou–is already under review and if accepted, will include taking a cornerstone of another leading blockchain and adding it to Tezos. This approach allows Tezos to not only remain nimble in a fast-paced industry but also build a ‘dream team’ blockchain network, combining all the best features of other networks into one.

If blockchain networks seek to stand the test of time and rebuild today’s institutions for a decentralized, democratized world, governance will be a vital part of the mission.

Prioritizing on-chain governance today, like Tezos, is the most straightforward way to achieve this.

David Tng is the Head of Growth at TZ APAC. Previously, David led multiple marketing initiatives for both fintech and private banks including MatchMove and UBS. He is an early advocate of blockchain. Prior to TZ APAC, David co-founded Arete Vision–a communications consultancy for regional blockchain firms, including Bluzelle and Synthetic.

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