Decentralized Autonomous Organization (DAO) had a successful initial coin offering in 2016 by most standards. As the “biggest crowdsourcing initiative in human history,” it raised a record amount of ethers (the digital currency) of $100 million in a record time of two days.
It used smart contracts on Ethereum’s blockchain to control the connection between DAO token holders and the organization as a whole. It was all cut short by a hack that took $55 million worth of ether by exploiting security flaws in the system’s code. For more information about Ethereum and Bitcoin, check out https://bitcoins-digital.com/
The Ethereum developer community was split about how to handle the leftover cash. The hard fork was by large investors, which would have reimbursed investors by establishing the “withdraw” function in the code. The “code is law” rule, which states that code about the original blockchain should remain immutable despite hacks, was at the heart of their argument.
Ethereum was due to a hard fork. In contrast, the Ethereum classic remained on the Ethereum blockchain. While Ethereum is currently the second most valued cryptocurrency, Ethereum classic is presently rated 64th. It announced that the trading of DAO tokens would no longer commence.
Why the Governance of Cryptocurrencies is Important
Investors have obvious redress mechanisms in equity markets. As a result of these frameworks, the corporation now has governance processes to safeguard investors’ interests and keep unscrupulous executives in check. Cryptocurrencies, on the other hand, have mostly escaped comparable regulation. DAO is simply one example of bad governance in cryptocurrency.
There are many such instances. According to Philipp Hacker, a researcher who wrote a study on corporate governance systems in cryptocurrencies, there is actual money at stake, raising investor and payment protection issues.
A small group of bitcoin stakeholders has taken control of the protocol changes implemented thus far. When it split Ethereum’s protocol into two halves, for example, investors came out ahead. More extended block sizes were only possible because the Bitcoin core team refused to allow code changes to allow for them.
Governing example Wrongdoing
The turmoil that ended in a fork in Bitcoin’s blockchain and the creation of a new cryptocurrency, Bitcoin Cash, happened without the knowledge of Bitcoin investors (BCH). A lawsuit filed by an investor against Tezos’ founders put the cryptocurrency’s on-chain voting method in jeopardy, further complicating an already complex governance challenge. The lack of governance structures has its own set of technological problems.
Replay protection, for example, could lead to the duplication of transactions between two blockchains. The number of coins in a user’s investment portfolio might increase due to a hard fork. In the same way, a lawsuit like the one against Tezos halts protocol development and locks up investor assets until it is ok.
Use Cases for Cryptocurrency Governance
Decentralized representation is already possible with Bitcoin and Ethereum. Improvement Proposals are at the heart of these systems, which developers and users propose to improve the performance and usefulness of their blockchains. However, according to Hacker, these ideas may not be sufficient on their own. When it comes to governance,
“Bitcoin has not developed a viable governance mechanism yet that would balance user/community voice with some guiding on behalf of core devs during times of crisis,” he argues. According to him, this is by the Bitcoin core team’s veto mechanism that prohibited the construction of a giant block on the cryptocurrency’s blockchain to facilitate transaction processing. Those that host complete nodes or use third-party wallets are considered users in this context.
Other Programs for Governance
It can find On-chain and off-chain governance systems in a variety of forms. For instance, Masternodes in Dash’s system vote on ideas made by the project’s core development team to make decisions on future development (which are responsible for transaction consensus). Masternodes hold Dash Core accountable for senior members of the Dash network.
They are also capable of removing it. As Monero’s public keys, which identify a voter, cannot be leaked, such an on-chain mechanism may encounter difficulties. Even yet, according to Hacker, the trend of cryptocurrencies moving toward developing governance frameworks is a good thing. Such systems are in high demand, as seen by this.