Layer 3: The Governance Philosophy

Athenian democracy remains the blueprint for the system of government that gives the people the primary power in decision-making. Many systems of government have adopted a similar approach, with differing levels of success, but all with the goal of letting those affected by policy have a say in choosing it.

When it comes to a blockchain network, the situation is complex. A recent paper entitled 'Blockchain Governance: What We Can Learn from the Economics of Corporate Governance' summarizes the problem succinctly:

Blockchain governance is the process by which stakeholders—all those that are affected by and can affect the network—exercise bargaining power over the network itself. This includes token holders, miners, and founders. But blockchains interact with, and are shaped by, external institutional frameworks, such as the firms that act as institutional investors for tokens or other organisations up and down the stack, the firms that provide exchange services, and government regulators who impose requirements (such as know-your-customer and anti-money laundering regulations) on the on-ramps to the network. (Allen & Berg, 2020)

In the paper, the authors divide the system of blockchain governance into three categories: endogenous governance, exogenous governance, and bootstrapping. Endogenous governance refers to the bargaining power inherent to those participating directly in the consensus mechanism; in Proof-of-Work, this is the miners, who are expending resources to secure the chain. Exogenous governance describes those governance structures that are separate to ledger consensus, including voting, holding a community referendum, and decisions made by the founders and/or developers. Bootstrapping, the third on the list, is the necessary practice of a smaller subset of relevant parties (normally the founders and core developers) making the initial decisions on the operation of the blockchain that allow it to function as intended, laying the groundwork for decentralized systems of governance once participation has reached a critical threshold.

The blockchain industry is still young, and experiments with different governance systems are being played out in real time across many pioneering projects. Most, however, exist either still beholden to the founders and/or core developers long after the bootstrapping phase has ended, or in the other extreme operate via a 'code is law' approach that is inherently risky and often prevents integration with the human layer, even for simple problems. At Zenotta, we believe in a governance philosophy that is community-led but still able to integrate with private legal acts in compliance with the relevant national and international laws; namely, a blockchain that is both democratic and compliant.

We achieve this with the following components/aspects:

1) A community voting system that is built on the Athenian principle of direct democracy but with the additional Socratic principle that voting on a change to the system should be done by those sufficiently informed on such a change, or at least those who would bear some of the consequences.

Unless consequential decisions are taken by people who pay for the consequences, the world would be vulnerable to total systemic collapse. (Nassim Nicholas Taleb, Incerto)

In this regard, miners are entitled to vote on aspects of the network protocol; for example, to remove any Compute Node that is behaving maliciously. Token holders will be able to vote on aspects of the economic model (escrow lock-ups, transaction fee allocations etc.) through a DAO, and the wider community of exogenous stakeholders, whether they be CPU/GPU/ASIC manufacturers, investors, network hosting providers, or even regulatory agencies, will be engaged through apposite channels that retain the vital properties of transparency and accountability.

2) A network design that includes governing parties of last resort, in the form of Compute Nodes.

The somewhat fantastical picture of a blockchain as entirely separate from the world around it, and beholden to no laws, is inherently self-defeating. Blockchains exist to be used, and the privacy and sovereignty of the individual must be protected as much as possible. Law is inevitably embedded in a functioning society through one or more legal systems that influence all legal relations. The Zenotta blockchain network will give rise to a new, Smart Data economy, and therefore a means to govern the network and ensure legal compliance is essential, a job that will be performed by the Compute Nodes. However, the implementation of this governance remains at the behest of the relevant stakeholders (the miners) so that we arrive at governance without control.

3) The Zenotta Whitebook project (see link for details).

We go one step further still with community involvement by introducing the Zenotta Whitebook project, which aims to develop living documentation on the practical, scientific, and philosophical facets of the Zenotta Digital System through expert and community involvement. We hope that the evolution of this document will come to represent the evolution of the blockchain industry.