The Blockchain Paradox – CoinDesk


Pindar Wong is the chairman of VeriFi (Hong Kong) Ltd and a member of CoinDesk’s advisory board. An world wide web pioneer, he co­founded the initially certified Net Provider Supplier in Hong Kong in 1993.

The following write-up at first appeared in Consensus Magazine, distributed completely to attendees of CoinDesk’s Consensus 2019 party.


From ethereum’s conflicted dealing with of The DAO attack to bitcoin’s block measurement “civil war,” to the new staking, baking and voting products for upgrading protocols and electing delegates in extra current blockchain tasks, “governance” has extended been a heated topic in blockchain communities

As force for capability upgrades has developed alongside with blockchain adoption, communities have struggled to uncover an idealized “decentralized governance” product for agreeing on code variations and software forks. The trouble is comprehensible. Soon after all, the pretty concept of blockchain governance can feel like a paradox wrapped in a dilemma. The paradox: “How do you transform anything which is ‘immutable’?”

The dilemma: “In choosing in between a difficult fork or comfortable fork: do you break up the pretty price of employing a blockchain in the initially put?”

I used to characterize the distinct ways to these basic inquiries as either “on-chain” governance, where by code transform negotiations are baked into the protocol’s consensus mechanisms (Decred, DFINITY, EOS, Tezos), or “off-chain” governance (bitcoin, ethereum), where by up grade proposals are negotiated offline before currently being applied. (Within just the latter
camp I also noticed even further division, as some, notably in the bitcoin neighborhood, forswear any kind of off-chain governance at all.)

I say “used to” because I no for a longer period assume it’s productive to deal with this puzzle in purely ‘decentralized’ or ‘governance’ terms. Discovering from the confusion and heartache of the earlier 20 yrs in which governments – the common, offline form – have struggled to fully grasp who “governs the Net,” I assume we require to transform the taxonomy.

I advise substituting “polycentric” for “decentralized,” and “stewardship” for “governance.”

Decentralized governance: ‘Polycentric stewardship’

While authorities took yrs to fully grasp what “Internet Governance” intended, billions of hosts and various “stakeholders” continued to arrive on the web all over the world. This intended that, a lot like blockchain engineering, the Net had its personal “scaling problems.” We did not run out of block fat or block fuel limit, but we did run out of figures to name each and every network interface
(IPv4 deal with exhaustion).

In addressing these troubles, a advanced ecosystem of stewardship emerged, almost organically. The Internet’s governance came to comprise quite a few unbiased but interrelated groups, each and every taking care of the progress of distinctly distinctive but equally significant protocols.

The Net Engineering Process Force (IETF) stewarded the main world wide web protocols that link hosts on the network (TCP/IP, BGP, HTTPS) the Entire world Huge World wide web Consortium (W3C) stewarded the expectations for the World wide web (HTML) and the Net Corporation for Assigned Names and Numbers (ICANN) stewarded the Domain Title Process (DNS), to name but a couple of groups.

Nowadays, the Net is not a one advanced lawful protocol agreed to by 195 country states, but a combine of complex protocols that are voluntarily adopted by around 70,000 Autonomous Techniques(AS): each and every of which independently operates its personal network.

This complexity in the stewardship ecosystem developed as the need for on the web industrial products and services produced it’s quite a few scaling troubles. But though it intended there would be no one centralized physique responsible for all the procedures and protocols that Net users’ depend upon, it did go away a concentration of authority inside each and every group. Just about every organically developed its personal
distinct lifestyle and neighborhood norms, its kind, to adhere to its one of a kind perform and go after a typical goal of stewarding the progress of specific protocols and coverage expectations.

Alongside one another, these groups now comprise a “polycentralized” ecosystem, acquiring quite a few centers. I see blockchain protocol progress following a related trajectory, with complexity rising as networks turn out to be extra layered (e.g. the Lightning Community), as distinctive consensus algorithms develop, and as distinctive sorts of specific blockchain hardware these types of as hardware wallets are deployed. While it’s true that the all round blockchain ecosystem is “not centralized” – that it lacks an overarching center of energy or handle – I would argue that it is previously polycentralized.

As these types of, it’s not valuable to fixate on a “decentralized” ideal.

Immutability and immunity

How then can we also frame and simplify reasoning about the distinctive roles, and advanced interests, inside a one spouse and children of blockchain protocols? For instance, in between bitcoin’s various stakeholders: developers, trade operators, comprehensive-node operators, miners and close-people.

One particular lesson I learned from serving to organise the 2015 “Scaling Bitcoin” workshops was that considerate protocol designers gave cautious notice to the all round sustainability of an immutable blockchain. They sought to deal with not only classic computational “space and time” tradeoffs, these types of as how to system an “optimally destructive block,” but also extra specific issues with how transaction expenses are externalised to the network — for instance, how to handle the unspent transaction output (UTXO) set.

In 2016, I shared my learning at the MIT Bitcoin Expo, but at that time I however felt that the rough and tumble of divisive discussion and nerve-racking troubles to the network would only make the bitcoin protocol and neighborhood extra sturdy and immune to long run troubles. Drawing parallels with the evolution of organic programs and the herd immunity they develop in reaction to persistent threats, I concluded that bitcoin’s “antifragile” framework was doing work.

Regretably, I did not then have a extra complete way of reasoning what a “healthy” – i.e. sustainable – network must look like. There was no mathematical concept for measuring an ecosystem’s sustainability. So, I was not viewing the all round picture and lacking some of the ecosystem’s extra basic governance troubles.

I now consider that the foundational get the job done of Nobel economist Elinor Ostrom and euro architect Bernard Lietaer, both of those a short while ago deceased, may possibly issue the way ahead, to much better frame discussions so that we can talk to the correct inquiries at the correct time, evaluate what must be measured and react appropriately.

Blockchain: A typical-pool useful resource

Ostrom, who handed absent in 2012, researched what economists connect with ‘common-pool resources’ (CPR), these types of as pastures for grazing or drinking water for irrigation, all of which chance rivalry and overexploitation if overused. I assume it is valuable to take into account blockchain transaction capability, the blockchain alone, and other relevant resources these types of as computation energy in the identical vein, as CPRs.

Prior to Ostrom’s investigate, it was believed that the only way to sustainably steward these types of resources was either by establishing private home legal rights or with govt regulation. Soon after learning hundred of circumstances of sustainable CPRs all over the world, Ostrom observed that advanced programs aren’t essentially “chaotic” by default. She observed sustainable CPRs – in Maine lobster fishermen’s typical governance of their fishery, for instance — and discovered a 3rd way was attainable. She determined 8 valuable typical ‘design principles’ for taking care of sustainable CPRs, collectively with two frameworks for reasoning: the Institutional Analysis and Style and design (IAD) and the Social-Ecological Techniques (SES) Frameworks.

I uncover Ostrom’s frameworks fruitful for wondering about the tradeoffs in between distinctive blockchain CPRs: collective bandwidth, memory, disk and computational capability, and many others. However the mapping is not exact, or one-to-one, I consider it can assistance long run scientists develop typical design ideas in blockchain incentive design.

Ostrom’s IAD and SES frameworks are not sufficient alone. They may possibly assistance us talk to the correct inquiries and assess the sustainability of distinctive blockchain ecosystems, but how does one really evaluate it for a blockchain network? Right here the late Bernard Lietaer has a lot to offer you.

Blockchain: A advanced adaptive move network

Lietaer, who died previously this year, co-designed and applied the European forex system’s convergence mechanism, earning him, in quite a few respects, a crucial architect of the euro.

He was a monetary scholar and wrote four publications on the long run of income. He also did revolutionary get the job done in the pre-cryptocurrency subject of “complementary currencies” and in 2017 was named Main Monetary Architect of the Bancor Protocol Foundation, which oversees the ethereum- dependent Bancor liquidity network for token convertibility.

Lietaer’s definition of income as “an settlement inside a neighborhood to use anything standardized as a medium of exchange” is among the my favorites. Most importantly, he and Robert E. Ulanowicz produced a one metric for measuring the sustainability of “complex adaptive move networks,” these types of as these that exist in flows of nutrients in character or financial flows in economic networks.

The sensible takeaway from a lifetime of learning actual-lifetime ecosystems is that there seems to be only a modest “window of viability” in between optimizing a sustainable network for larger resiliency and larger throughput. In the situation of a “monoculture in income,” the implication is that a modest handful of distinctive sorts of income are needed for optimal sustainability.

This bodes perfectly for the wider adoption of cryptocurrencies.

A new rulebook

Like a sixth sense, I see ‘dead’ governance products just about everywhere, all laid waste by the collision of two worlds: the globe of borderless networks, as embodied in the Net, and the globe of bordered nations. From Facebook’s disaster, which prompted its CEO to cry that “The Net Wants New Procedures,” to the UK’s Brexit disaster, it’s distinct that a new stewardship rulebook is expected.

With their capability to mechanically enforce policies throughout a borderless network, blockchain protocols offer you probable remedies to these deep-seated complications. But if their personal governance troubles reduce them from scaling over and above their existing capability boundaries, that prospect will be dropped.

When addressing these types of troubles, we require to design blockchain ecosystems as sustainable typical-pool resources. It’s this 3rd-way approach to negotiating advanced competing interests – neither chaos nor centralized handle – that will allow blockchains to sustainably scale into turning out to be a vital aspect of humanity’s economic long run.

Our long run is decentralized not disorganized, our long run is polycentric.

Lego blocks image by using Shutterstock

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