The decision of whether to upgrade a platform often rests on a central authority(e.g., Apple or Microsoft) in the more centralized traditional software world. This is not the case in the decentralized world of blockchain, where there is no CEO or board of directors to mandate upgrades. Now you are wondering, who actually makes the decision that a certain protocol should be upgraded in this world? The answer to that is a bit complicated and will be explained below:
The Governance Spectrum
There are two main kinds of blockchain governance, they are:
1. Off-Chain Governance
Best represented by Ethereum and Bitcoin, this kind of governance is akin to a decentralized meritocracy and relies on social consensus among several key stakeholders.
- Core Developers: The main developers of the chain who write the code and propose changes. They have significant influence in the community, but cannot mandate an upgrade.
- Node Operators: These are the people and machines that manage the nodes that make up the entire blockchain network. They can decide to download and upgrade their node, but if they refuse, the upgrade fails.
- Miners and Validators: An influential group in the ecosystem, they are responsible for providing the computational power or stake to secure the network. They signal support for an upgrade or proposal with their hardware.
- The Economic Majority: This group includes payment processors, users, and large exchanges and can veto a proposal by refusing to support a fork, which could possibly lead to the downfall of a protocol.
2. On-Chain Governance
Some members of the community take the position that off-chain governance is too opaque and slow, so they use on-chain governance, which involves hardcoding the rules for upgrades into the protocol itself. Stakeholders signal support for proposals with their assets, and once a specific threshold of votes is reached, the protocol is automatically upgraded on the entire network.
Disclaimer: BFM Times acts as a source of information for knowledge purposes and does not claim to be a financial advisor. Kindly consult your financial advisor before investing.
