On 13th September, Vitalik Buterin, the Co-Founder of Ethereum [ETH] appeared in an interview with Zcash. The interview was focused on the cons of pursuing an on-chain governance system wherein changes to a blockchain are proposed through code updates and solely occurs online. Vitalik Buterin stated:
“A couple of years ago, I would have been firmly attached to the same belief that EOS and other camps hold about the fact that we should be explicit about on-chain governance. And now I’m absolutely against that and I think that stuff is crazy.”
Vitalik further stated that digital assets like EOS have 21 delegate slots and to get into one of these slots, a user must first vote or must have people with enough coins to vote for them to get in. In total, about 17% of EOS holders have voted and out of these, the delegate with the largest number of votes is BitFinex, added Vitalik.
According to Buterin, BitFinex has about 3.5 percent or so of all the Eth voting for it [EthFinex is a subsidiary of BitFinex, which serves as an exchange for the Ethereum community]. Out of the 3.5%, 1.8 percent of it is coins that are owned by BitFinex itself, and the other 1.7 percent is owned by other individuals. Vitalik said:
“With this 1.8%, BitFinex is basically able to single-handedly get themselves into this list of 21 delegates when they otherwise would not have been able to do so. This privilege gives them the ability to take a share of the 1% a year annual interest that’s allocated to EOS delegates.”
Vitalik maintains that this kind of voting mechanism has created a superlinear pro-plutocratic effect. This means that if a platform or individual is big enough of an entity to have more than 1.8 percent of all the coins, the entity has enough votes that can be used to buy up a delegate slot.
The individual or platform can then use that delegate slot to earn even more currency and get access to a 2.6 4% extra premium interest rate that nobody else has access to. Vitalik Stated:
“That’s one example of how I think coin voting governance manages to fail in the case of allocating capital. I actually think that allocating capital is the killer app of on-chain governance. “
He further added:
“Ultimately, in terms of the quality of decision-making, I have the public opinion that Bitcoin’s governance has been fairly bad because it is overly conservative and values very specific things to more extreme extents than most actual users of the technology.”
Apart from these obvious cons, if a platform has been fairly capable of delivering on future improvements that people want – just as what the Zcash governance has been delivering on its roadmap, Buterin believes that this has made the Zcash constituents happy.
However, Vitalik maintains that on the protocol level and on the decision-making side, there just isn’t a case to say that off-chain governance has serious problems that need to be solved. Vitalik stated:
“Now the one big argument that on-chain governance has in its favor is the idea that, ‘oh now you can have these big treasury pools that inflate the currency by five percent every year, then use that to pay out big bounties and donations.’ So from a raw and economic power perspective, it has clear advantages.”
Vitalik further added that in all of the existing examples of on-chain governance that is seen, a mechanism has been created that can be easily captured in such a way that it doesn’t fail completely.
But at the same time, it creates a kind of massive, ‘rich-gets-richer effect’ wherein people at the top of the peak get access to the premium 2%, 3%, or 4% extra r interest rates that no one else has access to. Vitalik concluded by stating:
“On top of all this, issues around bribing attacks crop up, with added problems like if you have 4 percent of all of the coins, you can elect to outbid everyone else and get delegates. There’s also the fact that regular voters don’t have much incentive to serve as an effective “policeman”. So, I really am pessimistic about the ability of on-chain governance to properly deliver on all of those things.”
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