What is On-chain Governance?

On-chain governance is the official term used for the system that manages, controls, and brings changes in the cryptocurrency Market. All the changes and rules implemented into the cryptocurrency are set into the Blockchain protocol. Basically, the developers are supposed to propose the changes they would like to bring to the Blockchain network. The nodes send their vote concerning whether or not they accept the given proposal.

The system and the developers that implement changes to the Blockchain network are called on-chain governance. The governance system in the recent cryptocurrency market happens to be informal. While the cryptocurrency network is secure and fast, changes are required every now and then to enhance its safety.

The proposals of the changes and improvements in the Blockchain network are given by the developers. These proposed changes are decided after the mutual agreement between the stakeholder and developers. The stakeholders of the Blockchain network are those who are supposed to work on the nodes. Developers develop Blockchain algorithms and people who buy and sell the crypto coins.

Understanding On-Chain Governance

While most people believe that there is an informal system when it comes to cryptocurrency, critics have used quite a few Blockchain forks to prove it wrong. For example, one of the major improvements in the crypto Industry occurred in 2016 when the Ethereum was divided into the Ethereum and Ethereum Classic. The developers had proposed another great improvement which was quite easier and faster to implement, however, they did not proceed with the proposal as it would have caused loss to the investors. The first proposal was a soft fork. Surprisingly, a majority of people were in favor of this proposal. Despite that, the developers took the investors’ opinion and safety into consideration and executed the hard fork.

Another example that says the current Blockchain governance system is informal are a couple of events that took place in the year 2017. If you are a cryptocurrency user, you must know that Bitcoin Cash emerged in 2017. In that year, a fork that proposed the growth in the average size of the Bitcoin block got rejected by the professional cryptocurrency developer’s team. The main purpose of this fork was to make Bitcoin and other cryptocurrencies reliable enough for daily transactions. Considering the current high transaction fee involved in the crypto transactions, it goes without saying that using Bitcoin for small online transactions seem to be quite inconvenient and expensive.

Despite these issues, the team of developers rejected the proposal of increasing the block size of the Bitcoin. Miners or stakeholders were the only groups that received the benefits of the high transaction fee of Bitcoin. Later, a group of developers started to develop a unique cryptocurrency that had blocks of variable sizes.

The main purpose of forming on-chain governance was to bring a formal governance system. This system guarantees to prevent all kinds of centralization issues. Miners are given incentives for being part of the process.