Ethereum and the paradox of decentralised governance

The seemingly intractable problem of governance within decentralised systems was addressed at Edcon, the recent Ethereum developer conference in Paris. Both the Ethereum and Bitcoin communities have experienced their fair share of travails of one sort or another around governance.

Christoph Jentzsch, founder at Slock.it, reminded the conference that "hard forks should be hard". He went on to list certain options such as a Yellow Paper Committee, as proposed by Gavin Wood and the extreme measure known as Bomb 2.0 (EIP 138) which prompts a move to another chain by creating hyperinflation so native tokens become worthless.

Jentzsch concluded by asking: "Do we need better on-chain governance? It's an open question; perhaps a chicken and egg situation. We do have this tool for governance – smart contracts – and perhaps we should use them," he added.

The fundamental paradox of governance within market-driven decentralised systems was highlighted by Primavera De Filippi, a permanent researcher at the CERSA / CNRS / Université Paris II. Officially a lawyer who is self-taught in computer science, De Filippi is a faculty associate at the Berkman Center for Internet & Society at Harvard Law School, where she is investigating the concept of governance-by-design as it relates to distributed online architectures, such as and Bitcoin and Ethereum.

Her talk outlined how decentralised systems have power that often consolidates into unofficial clusters, but the underlying power dynamics are often times not visible. As those invisible powers merge it becomes much more difficult for people to actually understand who is accountable for what. She also suggested possible solutions using a concept she calls "proof of value".

"I would say that the Ethereum fork after the DAO hack is actually quite an interesting example, because there was no mechanism to resolve the issue," she said. "The Ethereum community actually had to try very hard to engage with every single one of its members in order to try and understand whether indeed the community wanted to fork or not.

"Paradoxically, this has been seen, at least from an external standpoint, as the Ethereum Foundation actually taking a very authoritarian step in order to impose a particular decision on the community."

De Filipi suggests a model called "Backfeed". It's a decentralised reputation system based on economic rewards which are not determined by algorithmic actions but rather on the subjective assessment on the value that an individual has actually had to the community; this is translated as proof of value.

This is reminiscent of Credence, the decentralised file sharing system where reputation is voted on, based on how useful shared data was from any given node. In the Backfeed model reputation will be based on how much an individual's contribution to a community is aligned with the overall value system of the community. Likewise, the market value of currency tokens will depend on the perceived value of services provided by the community.

This system is still hierarchical but also very dynamic. There are also shades of "Futarchy" here, since an organisation has the power to decide where to focus its efforts without necessarily deferring to some layer of top management, executive board etc.

De Filipi said in interview: "If you look at the way in which most of those blockchain-based applications are developed, the governance is always relying on a market-based system. It's kind of paradoxical in the sense that the goal is always to create a decentralised system, a decentralised governance structure, but most of the time they rely on theoretical free market. Eventually this market always centralises itself. There is always concentration of power.

"You have these systems that are deployed on top of a decentralised infrastructure, but in fact are governed by powerful actors which are dominating that market. So that's the case with Bitcoin, that's the case of Ethereum with the mining, that was the case following the DAO."

She explained that creating a meritocratic system is not about getting rid of hierarchies, which are actually quite useful. What must be eradicated are invisible hierarchies that exist today because of a market driven approach.

"A transparent and completely identifiable meritocracy depends on the actual value that every individual is bringing to the system. Once you stop contributing to the system, so once your value is no longer as fundamental because other people have joined, then you should not keep the same power that you had."

Backfeed, which is still a work in progress, is just one of a group of systems addressing these sorts of issues within decentralisation. "The idea is really to figure out ways to make more visible and apparent the existing power dynamics so that you can better understand how the community is being governed," she said.