{"id":10533,"date":"2023-05-26T01:27:10","date_gmt":"2023-05-26T01:27:10","guid":{"rendered":"https:\/\/www.bitnovo.com\/blog\/?p=10533"},"modified":"2022-05-17T08:53:50","modified_gmt":"2022-05-17T08:53:50","slug":"what-is-a-cryptocurrency-governance-system","status":"publish","type":"post","link":"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-cryptocurrency-governance-system","title":{"rendered":"What is a cryptocurrency governance system?"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Alternar tabla de contenidos\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #ffffff;color:#ffffff\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #ffffff;color:#ffffff\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-cryptocurrency-governance-system\/#origin_of_governance\" >Origin of Governance<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-cryptocurrency-governance-system\/#how_does_governance_work\" >How does governance work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-cryptocurrency-governance-system\/#types_of_governance\" >Types of governance<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-cryptocurrency-governance-system\/#on-chain\" >On-chain<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-cryptocurrency-governance-system\/#off-chain\" >Off-chain<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 4<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span><p class=\"p1\">In the world of cryptocurrencies, one of the most important factors is the\u00a0<strong>blockchain.<\/strong>\u00a0Thanks to it, the structure of all blockchain-based projects we know is supported.<\/p>\n<p>These\u00a0<strong>projects<\/strong>\u00a0require the work of thousands of people around the world to function. The work of these people consists of\u00a0<strong>basic rules<\/strong>\u00a0known as \u201c<strong>Governance<\/strong>\u201d or governance system.<\/p>\n<p class=\"p1\">Governance has the main\u00a0<strong>objective<\/strong>\u00a0of maintaining the functioning of a cryptocurrency or project where\u00a0<strong>all users participate<\/strong>. In this article we will tell you all about how it works and its importance.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2 class=\"p1\"><span class=\"ez-toc-section\" id=\"origin_of_governance\"><\/span><b>Origin of Governance<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p class=\"p1\">The first cryptocurrency projects did not have a\u00a0<strong>governance system<\/strong>. An example of this is Bitcoin, the first cryptocurrency. In the case of Bitcoin, governance was\u00a0<strong>governed<\/strong>\u00a0by the decisions of\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/who-is-satoshi-nakamoto\/\">Satoshi Nakamoto<\/a>, as he was the sole developer.<\/p>\n<p class=\"p1\">After Satoshi\u2019s demise new developers came to the project making Bitcoin governance more decentralized. After the arrival of\u00a0<strong>Gavin Andressen<\/strong>, Bitcoin began to go through changes, among them the arrival of the\u00a0<strong><a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-bitcoin\/\">Bitcoin<\/a>\u00a0Improvements Proposals or BIP<\/strong>. This was one of the most important contributions to\u00a0<strong>decentralized<\/strong>\u00a0governance in the blockchain.<\/p>\n<p class=\"p1\">The governance model was\u00a0<strong>replicated<\/strong>\u00a0in other projects, including\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-litecoin\/\">Litecoin<\/a>\u00a0or the second largest cryptocurrency,\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-ethereum-eth-and-how-does-it-work\/\">Ethereum<\/a>. However, other projects adopted different and new forms of governance. In the case of\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/dash-cryptocurrency\/\">DASH<\/a>\u00a0and the first<strong>\u00a0Decentralized Autonomous Organization<\/strong>\u00a0(<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-a-dao\/\">DAO<\/a>), more open forms of governance were adopted. Each structure in the projects was adapted to the system used in the projects.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div id=\"image_1754160596\" class=\"img has-hover x md-x lg-x y md-y lg-y\">\n<div class=\"img-inner dark\"><img fetchpriority=\"high\" decoding=\"async\" class=\"attachment-large size-large lazyloaded\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu%C3%A9-es-un-sistema-de-gobernanza-en-criptomonedas.jpeg\" sizes=\"(max-width: 768px) 100vw, 768px\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas.jpeg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas-300x205.jpeg 300w\" alt=\"Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas\" width=\"768\" height=\"526\" data-srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas.jpeg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas-300x205.jpeg 300w\" data-src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas.jpeg\" data-sizes=\"(max-width: 768px) 100vw, 768px\" \/><\/div>\n<\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2 class=\"p1\"><span class=\"ez-toc-section\" id=\"how_does_governance_work\"><\/span><b>How does governance work?<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p class=\"p1\">Governance in the\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-blockchain-and-how-does-it-work\/\">blockchain<\/a>\u00a0is based on a\u00a0<strong>set of rules<\/strong>\u00a0by consensus among the users participating in the blockchain. Through governance, certain\u00a0<strong>general rules<\/strong>\u00a0are agreed upon to be followed in order to achieve a good development of the system. These rules must be followed to the letter for the\u00a0<strong>management and development<\/strong>\u00a0of the project.<\/p>\n<p class=\"p1\">Through governance, a participant in the system agrees to\u00a0<strong>collaborate<\/strong>\u00a0or not with the system. Generally, social structures have a<strong>\u00a0governance<\/strong>\u00a0system. Cryptocurrencies are an example of a\u00a0<strong>structure<\/strong>\u00a0governed by such systems.<\/p>\n<p class=\"p1\">The main goal of governance is to keep the<strong>\u00a0interest in the project<\/strong>\u00a0behind the blockchain united with the\u00a0<strong>interests of the participants<\/strong>. This is a way to keep the project in constant development and operation in addition to\u00a0<strong>preserving<\/strong>\u00a0the market value and guaranteeing the existence of the project.<\/p>\n<p class=\"p1\">Governance avoids\u00a0<strong>self-destructive tendencies<\/strong>\u00a0in the community by which it is formed. The idea is, through consensus,\u00a0<strong>to maintain peace and order<\/strong>\u00a0in the ecosystem. It should be noted that governance implies a certain level of<strong>\u00a0centralization that is completely<\/strong>\u00a0contrary to the values presented by blockchain structures. This makes the implementation of\u00a0<strong>governance a rather complex task.<\/strong><\/p>\n<p class=\"p1\">The work of blockchain governance involves dealing with different l<strong>ayers of the technology<\/strong>\u00a0of which the blockchain is composed as well as dealing with different layers of governance. The<strong>\u00a0governance<\/strong>\u00a0rules will depend on the infrastructure that makes up the blockchain to which it belongs.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div id=\"image_931267090\" class=\"img has-hover x md-x lg-x y md-y lg-y\">\n<div class=\"img-inner dark\"><img decoding=\"async\" class=\"attachment-large size-large lazyloaded\" src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu%C3%A9-es-un-sistema-de-gobernanza-en-criptomonedas2.jpeg\" sizes=\"(max-width: 768px) 100vw, 768px\" srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas2.jpeg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas2-300x205.jpeg 300w\" alt=\"Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas\" width=\"768\" height=\"526\" data-srcset=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas2.jpeg 768w, https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas2-300x205.jpeg 300w\" data-src=\"https:\/\/www.bitnovo.com\/blog\/wp-content\/uploads\/2021\/07\/Qu\u00e9-es-un-sistema-de-gobernanza-en-criptomonedas2.jpeg\" data-sizes=\"(max-width: 768px) 100vw, 768px\" \/><\/div>\n<\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h2 class=\"p1\"><span class=\"ez-toc-section\" id=\"types_of_governance\"><\/span><b>Types of governance<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p class=\"p1\">In\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-blockchain-and-how-does-it-work\/\">blockchain<\/a>\u00a0governance,<strong>\u00a0two types of governance<\/strong>\u00a0can be identified. One occurs within the blockchain and the other operates outside the blockchain. This governance is divided into two main groups,\u00a0<strong>on-chain and off-chain<\/strong>. Below we will see their main characteristics and how they work.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h3 class=\"p3\"><span class=\"ez-toc-section\" id=\"on-chain\"><\/span><span class=\"s1\">On-chain<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p class=\"p1\">Blockchain governance is a\u00a0<strong>relatively new<\/strong>\u00a0category as it is yet to be implemented in certain projects. The main objective of this type of governance is to\u00a0<strong>democratize important aspects<\/strong>\u00a0such as decision making on the blockchain directly. This is achieved through on-chain\u00a0<strong>voting<\/strong>\u00a0systems optimized specifically for each network.<\/p>\n<p class=\"p1\">With this type of governance we can find projects such as\u00a0<strong>DASH or\u00a0<a href=\"https:\/\/www.bitnovo.com\/blog\/en\/what-is-uniswap\/\">Uniswap<\/a><\/strong>. These projects exercise their governance through tokens and systems that are powered by actions on the blockchain for\u00a0<strong>decision making<\/strong>.<\/p>\n<p class=\"p1\">In this type of governance there are aspects that characterize it as a\u00a0<strong>slow development<\/strong>\u00a0in most systems where they are implemented outside the\u00a0<strong>digital world<\/strong>. However, the solidification of blockchain governance can be\u00a0<strong>accelerated<\/strong>. It all depends on its long-term growth and validity.<\/p>\n<p class=\"p1\">In blockchain governance, consensus stands out.\u00a0<strong>Consensus<\/strong>\u00a0is achieved through direct\u00a0<strong>voting in the protocol representing a democracy<\/strong>\u00a0with slight optimizations for each blockchain. We must keep in mind that this is a new form of consensus for governance so its\u00a0<strong>effectiveness<\/strong>\u00a0is still being evaluated. After voting the results are governed by algorithms and their automatic execution is\u00a0<strong>integrated<\/strong>\u00a0into the protocol.<\/p>\n<p class=\"p1\">On-chain governance models have<strong>\u00a0reward systems<\/strong>, unlike off-chain governance. This type of governance wants to move power from the\u00a0<strong>miners and developers<\/strong>\u00a0to the users of the blockchain to arrive at a\u00a0<strong>fairer and more decentralized<\/strong>\u00a0system. Another difference with respect to the off-chain system is that the\u00a0<strong>voting<\/strong>\u00a0results in on-chain are visible to everyone, that is, they are fully\u00a0<strong>public<\/strong>.<\/p>\n<div class=\"is-divider divider clearfix\"><\/div>\n<div class=\"is-divider divider clearfix\"><\/div>\n<h3 class=\"p3\"><span class=\"ez-toc-section\" id=\"off-chain\"><\/span><span class=\"s1\">Off-chain<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p class=\"p1\">This type of off-chain\u00a0<strong>governance resembles traditional governance systems<\/strong>. There are well-known cryptocurrencies that implement this type of governance, including\u00a0<strong>Bitcoin and Ethereum<\/strong>. Off-chain governance, in the case of these two cryptocurrencies is implemented through the<strong>\u00a0balanced implementation<\/strong>\u00a0of all power in miners, commercial entities that are part of the community and users.<\/p>\n<p class=\"p1\">This is a\u00a0<strong>slow implementation<\/strong>, however it admits certain\u00a0<strong>gradual improvements<\/strong>\u00a0that allow to maintain<strong>\u00a0sustainability<\/strong>\u00a0in cases such as Bitcoin. New development ideas come through proposal systems such as the<strong>\u00a0BIP or Bitcoin Improvement Proposal<\/strong>. Through this system, developers participate with\u00a0<strong>novel ideas<\/strong>\u00a0that turn Bitcoin into one of the most powerful cryptocurrencies.<\/p>\n<p class=\"p1\">However, off-chain governance maintains a\u00a0<strong>centralized nature<\/strong>\u00a0that excludes many users because\u00a0<strong>they lack the technical expertise or financial power to participate in the network<\/strong>. In off-chain governance systems, consensus is achieved through\u00a0<strong>community leader<\/strong>s. Fortunately, users of this type of blockchain also have a certain\u00a0<strong>flexibility<\/strong>. This flexibility comes from\u00a0<strong>Hard Forks<\/strong>\u00a0(<strong>if you want to learn more about Hard Fork, we have a more detailed post on our blog<\/strong>).<\/p>\n<p>This option allows users who\u00a0<strong>disagree<\/strong>\u00a0with the governance system to create their own system by\u00a0<strong>splitting the open source protocol from the original protocol.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p><span class=\"span-reading-time rt-reading-time\" style=\"display: block;\"><span class=\"rt-label rt-prefix\">Tiempo de lectura:<\/span> <span class=\"rt-time\"> 4<\/span> <span class=\"rt-label rt-postfix\">minutos<\/span><\/span>In the world of cryptocurrencies, one of the most important factors is the\u00a0blockchain.\u00a0Thanks to it, the structure of all blockchain-based projects we know is supported. These\u00a0projects\u00a0require the work of thousands of people around the world to function. The work of these people consists of\u00a0basic rules\u00a0known as \u201cGovernance\u201d or governance system. Governance has the main\u00a0objective\u00a0of maintaining [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":7668,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[185],"tags":[],"class_list":["post-10533","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blockchain-en"],"_links":{"self":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/10533","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/comments?post=10533"}],"version-history":[{"count":0,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/posts\/10533\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media\/7668"}],"wp:attachment":[{"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/media?parent=10533"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/categories?post=10533"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bitnovo.com\/blog\/wp-json\/wp\/v2\/tags?post=10533"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}