(In)formal Blockchain Governance

(In)formal Blockchain Governance



Governance entails the processes that lead to legitimate decision-making within a system upon its state.

What is perceived to be legitimate may be highly subjective to the group, individuals within the group, their social standing and involvement within the system. Informal governance processes have three interlinked, yet discrete, sets of objectives & challenges:

Participation. The group may reference the set of people who are able to provide their point of view in governance processes. Note that not every member of the group may be able to represent their interest in governance processes. This might be due to flaws within such processes. Gathering sentiment through discussions, voting, or any other form of governance, has to be highly inclusive to allow for more accurate governance models.

Recognition. Whether or not governance processes are recognised within a group or system may depend on the type and number of stakeholders who acknowledge the governance processes in place. Any outcome that is recognised by the majority of the group, a group of authorities or representatives, may be called an observed outcome, which may lead to action in response to the sentiment gathered from a group.

Interpretation. Overall, reaching an unambiguous outcome is highly desired, since it supposedly leaves little room for subjective interpretations of the sentiment. Consequently, a group may be more likely to agree on the legitimacy of its governance processes and their outcomes. However, what an individual or group may define to be unambiguous and legitimate may also be fostered by the group’s own views and biases. Group members, a society, or individuals within a system, who do not interpret governance processes and decisions on their own account, are more likely to acknowledge the outcome of that decision and the decision-making/governance process. This does not mean that personal interpretations should not be encouraged. If everyone involved in the governance process accepts the decision making process and its outcome, it may be a legitimate governance process.

Like I have outlined in ‘Limitations to Decentralisation’, we can differentiate between subjective and objective decision making. Subjective decision making allows for ambiguity of the outcome, whereas objective decision making does not. Conceivably, objective decision making may not even exist. To achieve objective decision making, oracles, which provide information from the source or another intermediary, may only operate on objective data or data that is classified as such. This restricts the range of use cases possible in decentralised systems.

In this article, I start by providing a comparison between current, government-provided representative decision making and on-chain governance. Then I will outline several problems that are inherent in both and outline proposals on how we should improve upon those.

Similarities in Governance Protocols

Coin Voting

In the case of coin voting, we provide every coin holder with the possibility to vote. A vote allows an individual or group to express their preference on predefined outcomes.

The weight of the vote may depend on the number of coins owned by the individual or their reputation within the system. As a result, wealthier individuals have more weight in the decision making process and the governance of the system.

To deter the ‘ruling of the rich’, we may implement identity registration. Current decentralised identification systems rely, for example, on the web of trust.

In the case of identity-based trust, a user registers and requires other, already registered users, to approve their identity. The more users who approve one’s identity the more reliable you are as a member within the system. (Obviously, there are various mechanisms to modify the implementation of the web of trust [for examples, see here].)

Fast forward, every user may vote only once on specific outcomes (or as many identities as are acknowledged by other users).

Challenges with this approach are:

  • Stakeholders (anyone with an interest in the system), who may not hold tokens, are unable to vote nor provide a clear sentiment.
  • Stakeholders may not be considered by representatives (individuals that define voting processes and potential outcomes) if they do not hold coins.
  • If you are not directly involved with the processes within a system, you will not have a chance to provide your insights, values, preferences and knowledge. Generally, systems are more accessible by actively involved members.
  • Various implementations allow for various groups of people to have a higher weight in the system. These people are ultimately also the ones who may provide predefined options for others to vote on.
  • The group decision makers are generally closely related, with a similar background and understanding of the system in place. This may or may not be favourable for the system and its decision making. On one hand, you would want to rely on experts to make the decision (depending on who defines whom to be an expert), on the other hand, expert rule does not allow for an inclusive and diverse set of ideas to further innovation.
  • Rough decision making processes may only take into account the sentiment of the most involved group members. Additional involvement by other group members such as discussions, test results, activism, research etc., is rarely considered.

Representative Governance

Governance processes rely on representatives, who are in most cases part of a party, i.e. group that identifies with common objectives and values.

Representatives are generally a group of people or individuals that have gained credibility within the system in place. Whether or not that credibility is perceived by the majority to be justified or not is a different issue.

Therefore, just because someone might have gained perceived credibility AND serves in the position of a representative does not automatically mean that this representative is the most eligible to make decisions. In most DLT-based protocols, the developers decide on who is eligible to vote, the set of outcomes to vote upon, and the overall decision making process, which the community may engage with.

Members of the wider community are never really asked to vote on an issue of their concern but rather to vote for a group of people, who is most likely to take action on their behalf. In case that a representative does not act in the group’s interest, individuals have to wait for the next election period to vote for an alternative option.

Furthermore, election processes are quite black and white. For example, in many election systems, it is not possible to rank possible representatives in an order of choice. Also, we are often unable to select a combination of representatives from different parties, and, in most cases, are not asked to vote on issues, disputes or proposals, directly.

All told, such circumstances of representative voting lead to an illiquid democracy.

Formal vs. Informal Governance Processes

Generally, democratic processes rely on the election of representatives, who are then trusted to participate in informal and formal decision making upon a society, state or country.

Formal governance processes, are generally predefined and allow for procedural governance actions. Note that the description of formal governance processes, written or verbally, does not necessary have to be accessible for all stakeholders nor do all stakeholders have to be able to participate.

In comparison any informal governance processes are referred to as processes that have not been predefined by a group of stakeholders, or representatives. Stakeholders may participate in informal decision-making consciously or unconsciously. Thus, depending on the nature of informal decision making processes, the outcome may be recorded, recognised, and even acted upon.

Throughout informal governance processes, stakeholders will have higher certainty in their decision making. However, informal governance processes often remain as such, which makes it much harder for representatives and stakeholders to act upon. Furthermore, the wider community may not acknowledge certain informal governance processes as being legitimate.

Additionally, representatives and stakeholder may perceive informal processes as structureless. Structureless may be defined as the formal idea that a system does not have any structure, which is a hypocrisy.

While informal governance processes might give the impression as solely fostering chaos, structure will still be present even if it is not recognised by all stakeholders. Thus, informal governance may not be confused with structureless processes. Arguably, no process may ever be structureless. However, this is outside the scope of this post.

For now, it is useful to return to the importance of formalising informal governance processes.


In the rare case in which the general public is asked to directly make a decision, such as in the case of Brexit, the voting process has similar disadvantages as on-chain, rough governance.

First of all, a Yes or No vote, or similar binary choice, will never be able to capture the entire sentiment of all people. This may be because there is no outcome that represents everyone’s perspective. We have to acknowledge that any set of predefined outcomes are decided upon by a group of individuals, who act as representatives.

Secondly, the average voter might completely lack adequate information or awareness to participate in crucial decision making. Even though eligibility to vote is highly underrated, it should be for no one but for an individual to decide upon whether or not they are eligible to participate in governance processes.

After all, who would otherwise be eligible to decide or implement processes that clarify who is eligible to participate in governance?

Thus, a voting process could provide voters with the option of ‘I don’t know’ or ‘I do not feel eligible to provide an answer’, maybe even ‘I prefer if _______ would provide a response on my behalf’.

However, I do not believe that a central authority should determine who is eligible to vote. Irrespective of the level of claimed expertise — whether by scientists, politicians, or blockchain developers — we should be skeptical of anybody who claims to hold special status or credentials that allow them to set the terms of electoral and/or political agendas.

At minimum, we should not delegate authority until we can come up with a fair processes for doing elections and/or exercising blockchain political rights.

No one seems to know how such a process could possibly look like. There are clear problems with today’s voting systems that generally allow anyone to vote for either a representative or for predefined set of possible outcomes. Tomorrow’s processes are likely to suffer from similar structural flaws to those found today. For instance, any third-party assessment for deciding the eligibility of voters (or, say, auditors) would most likely be highly biased and exclusionary.

Again, representatives = individuals who may or may not be eligible to represent the interest of the commons or to decide upon what that interest may be.

Beyond Voting

Informal Governance Processes

So far, I have outlined the flaws of on-chain governance and representative governance (admittedly, without much detail.) Additionally, I have briefly touched upon representatives engaging not only in formal voting but also in more informal processes.

Informal governance processes may lead to formal governance processes if they have been acknowledged by the right people, i.e. representatives.

We have to acknowledge that members of a system participate in informal governance processes as a collective or as individuals, which are often not taken into account by representatives. Meaning, these processes are either not observed or unobservable. Thus, representatives are unable, or simply refuse, to take direct actions. The current global regulatory gridlock on structural solutions to climate catastrophes is a case in point.

To act upon informal governance, and hold representatives accountable, we have to provide processes that make informal governance processes observable.

The problem is that we first have to decide upon who is able to implement processes, which either formalise informal processes or make them observable.

Here, we clearly have a chicken and egg problem. How do we decide on processes that guide informal and formal decision making if we have no processes to decide on who is eligible to make such decisions? I know that this seems highly abstract but we have to talk about this.

One of the worst possible outcomes that I can imagine is that a group of newcomers within a system simply decides on such processes or predefine rough governance structures.

Referred to as “capture” in different contexts, this is actually already the case in on-chain governance structures and also in state governance. Informal, democratic governance actions and processes are rarely taken into account — at least not on a level that is observable for the general public.

Two case scenarios are the thousands of students who demonstrated in the US for more gun-control after repetitive school shootings, or the 1.5 + Million of children and teenagers who demonstrated for more political action to prevent climate change on the 15th of March.

These are all governance actions and they should be acknowledged NOW and not in a formal vote once these kids and teenagers are old enough to tick a box! And yet our existing processes for registering these legitimate political demands are either nonexistent, or grossly inadequate.

Towards Defining Informal Governance Processes

Assuming that representatives are selected through formal governance processes, such as voting, we will have to define how anyone may participate in informal governance processes and how these informal governance processes may be observable for everyone.

Currently, any informal process may only be acted upon if representatives have directly participated in those. In these contexts, personal involvement is beneficial and often dispositive. While the public (groups and individuals) is able to influence what representatives perceive to be beneficial involvement, they are unable to directly influence the type of involvement and decisions overall.

This is exactly where I see current thought leaders and platform developers failing. However, only few admit it to themselves. In blockchain governance, we have no process of verifying or acknowledging informal governance participation. Several individuals are working on this problem but their work is made harder by ‘informal governance deniers’.

We are not providing a great solution to current power structures if we merely recreate the same problems.

A world governed by a group of (often) self-selected individuals who close themselves up inside their own thought-bubble is really dangerous. Without considering opposing opinions, one is left with might-makes-right politics. Sadly, this is the current scenario in many decentralised as much as centralised projects and attendant governance structures.

One cannot talk formally about inclusiveness and accessible voting protocols while allowing a group of self-selected individuals to hold informal back-room meetings on changes to such formal protocols. This type of behaviour will eventually lead to forks and shattered communities.

Even if you currently think that the issues outlined above are a little bit far fetched, when you consider the implications of blockchain governance systems and their scaled potential, these questions become key!

I am not going to provide any solution on how to foster informal governance structures since this is for the community (whoever that might be) as a collective to decide upon. I merely hope that this community would give those young climate activists, and similar groups, a voice.


Governance processes may be fostered by representatives, who have either been self-selected due to their superior status in comparison to others, or preferenced via largely self-replicating governance processes. Many formal governance processes are defined previously by representatives with a direct interest in staying in positions of privilege and power.

Generally, governance processes may be classified as formal or informal processes. Any formal process may be defined and observable by any group member. If a process is observable it may provide insights to any third party about the decision making process within a group, or system. Additionally, observable processes allow for insightful reasoning upon decision making processes and conclusions.

In comparison, informal governance processes may be undefined, or only acknowledged within a subgroup of the community or system. Therefore, any decision making through informal processes may not be perceived to be legitimate and left unacknowledged by representatives, the wider community, or both. This may be a big problem if it results in inaccessibility and detachment of representatives from the wider community, their interests, and more broadly-shared values. Additionally, a preference for perpetual informal governance may not allow for self-organised groups to contribute to formal governance decisions.

Formalising informal governance actions, to make those observable and implementable, is not the responsibility of one entity but a community as a whole. However, this can only be achieved if everyone within the community is aware of their responsibility for governance — on-chain and off.

‘Les Grand Plongeurs Noirs’ (‘The Big Black Divers’) (1944) de Fernand Léger — If governance was a painting…