On & Off Chain Models
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Off-Chain Governance Models
Improvement Proposal (IP) Model
Bitcoin and Ethereum both adhere to the improvement proposal (IP) governance model. These proposals serve as design documents providing information or describing a new feature to the cryptocurrency community. They provide detailed specifications of the proposed feature and the rationale for why it should be implemented.
In these models there are usually three types of proposals. The first, which affects the protocol and codebase, second which proposes a change in guidelines and processes but does not change code or protocol, and third which is informational and does not require rigorous consensus like the previous proposals.
Bitcoin’s governance model has seen overwhelming success. It has been able to successfully handle a majority of its disputes and avoid scandal. Ethereum has not, despite its mirrored governance model. Why is that?
Bitcoin and Ethereum’s currency play different roles in the economy and as such cannot be governed in the same manner. Bitcoin is electronic gold -- it’s intended to be a store-of-value. Ethereum on the other hand, with the introduction of Smart Contracts, became a utility coin with the ability to be used as a medium-of-exchange. The difference in utility will ultimately lead to different interests by stakeholders. Bitcoin holders are much more concerned with security whereas Ethereum stakeholders may be much more focused on transaction speeds.
Beyond this, the introduction of Smart Contracts instantiated on the Ethereum blockchain left constant weaknesses in code to be exploited. Decentralized Application (dApp) developers create code, sometimes secure, sometimes fraught with vulnerabilities that are manipulated before the community has the chance to address them. Ethereum has over 2,000 improvement proposals that are active compared to Bitcoins 322 improvement proposals. These vulnerabilities in Smart Contracts, and the inability of the Ethereum governance model to address them quickly, led to the infamous DAO hack, stealing US$50 million in Ethereum tokens from the token sale.
On-Chain Governance Models
Delegated Proof of Stake (DPoS) Model
The delegated proof of stake (DPoS) model is an on-chain governance protocol that has been implemented by multiple blockchains, most notably EOS. There are two important parts of a functioning blockchain under DPoS: 1) the election of a block producer, and 2) the scheduling of block production.
Block producers are elected continuously and control is granted to stakeholders, as they are perceived to have the most to lose if the blockchain is not operating smoothly. Consensus on DPoS requires 2/3 + 1 to resolve all cases. This allows for 21 or more block producers at any given time. In normal production, block producers are supposed to take turns producing blocks every 3 seconds. The assumption, just as with proof of work, is that the longest chain wins. Assuming no one misses their scheduled time, this production will always produce the longest chain.
Minority Fork
If there is a minority fork created by up to 1/3 of malicious nodes, a block will be produced every 9 seconds. The original chain will be producing at a rate of two blocks every 9 seconds. In this case, the original chain will be producing at a faster rate than the fork, therefore remaining the longest chain.
Double Production by a Disconnected Minority
The minority chains, no matter how many of them there are, will always produce at a rate slower than the majority.
Network Fragmentation
The network may fragments in such a way that no fork has a majority. In this case, the longest chain will be that of the longest minority. When the network reconnects, the smaller minorities will realign themselves in such a way that will restore operations unambiguously.
If they two longest forks are the same length, this will not last for long because there is an odd number of block producers. Inevitably, one chain will prevail as the longest, legitimate chain.
Lack of Producers
In the unlikely event that there are a lack of block producers, stakeholders can include votes in their transactions to quickly elect more. During this process, users are aware that the network is in a state of flux until resorted to at least 67% participation. Those who chose to transact under those conditions take that risk knowing that the specific chain they transacted on may not end up being the longest once the network is operating at full capacity.
Corruption of a Majority of Producers
If a majority of producers become corrupt, they can produce an unlimited number of forks with 2/3 confirmation. In this case the irreversible block algorithm reverts to the longest chain. The longest chain will be the one approved by the largest majority, decided by the minority of the remaining honest nodes. This behavior would not last long because stakeholders will vote to replace the block producers.
Transactions as Proof of Stake (TaPoS)
Users sign transactions under a certain assumption about the state of the blockchain. If consensus shifts to a different chain, then it would invalidate the assumptions the signer has when they consented to the transactions.
Under this model, transactions include a hash of a recent block and are considered invalid if that block does not exist in the chains history. Therefore anyone who signs a transaction on an abandoned fork will find that transaction invalid.
This helps avoid long range attacks on alternative forks. Individual stakeholders directly confirm the blockchain every time they transact. Overtime, all the blocks are confirmed by all the stakeholders.