When you think of governance.. who do you trust? PHOTO BY JORGE ALCALA ON UNSPLASH
Blockchain may be grabbing all the headlines today, but in the real world, an enterprise seeking to deploy the groundbreaking technology might find questions in its central promise.
While it can provide a secured ledger, thereby reducing risk, there remain worries over the intersection of regulation and technology behind blockchain. There is much to be understood in tradeoffs between the trustful distributed systems that underlie much of the systems today, and the trustless decentralized networks many blockchain entrepreneurs believe will be the bedrock for future applications.
The industry is young and has yet to face groups that are large, powerful and determined enough to attempt to take it over. Bitcoin, the most well-known use of blockchain, is an example. Researchers have warned that a large pool of nodes may be operated by a small number of users who together possess most of the hash power, or the computing strength, behind the network.
This should worry owners of the cryptocurrency, because if one party manages to control the network, it could disrupt the blockchain and the cryptocurrency as well. In such a cryptocracy, where the real leaders are hidden, or merely unknown, political power over network decisions resides with private individuals (miners) who are exercising power behind the scenes, beyond the scrutiny of democratic institutions or developers attempting to improve the protocol.
A new governance mechanism is needed – Quadratic Voting
For enterprises, a similar worry exists for those seeking to deploy blockchains in their everyday operations, say, to draw up smart contracts between partners or to help ensure the correct flow of goods in a global supply chain. They need a system that is dynamic and robust enough to deter those seeking to disrupt it while it grows safely,
One way forward is through a consensus mechanism that uses quadratic voting. Invented by researcher Glen Weyl, quadratic voting provides a better way to make collective decisions that avoids the tyranny of the majority. It allows people to express how strongly they feel about an issue rather than just whether they are in favor of it or opposed to it. If a participant has a strong preference for or against a particular decision, additional votes can be allocated. However, the cost of additional votes increasingly becomes more expensive quadratically (1 vote – $1, 2 votes – $4, 3 votes – $9, 4 votes – $16).
It prevents a single group from quietly taking it over. A person has to purchase votes for or against a proposal by paying into a fund the square of the number of votes that he or she buys. At the end of each governance cycle, all tokens cast as votes are redistributed evenly between the voters. It will take a group many cycles and a costly number of tokens to take control, likely alerting the rest of the blockchain users to the issue to take action.
Building this into a blockchain, as EximChain has done, guarantees network security. This will not work in isolation, either. Having users sign up via a KYC (Know Your Customer) process also helps to govern a blockchain effectively. This means a group of users aggressively trying to take over a blockchain can be easily identified. Essentially, it helps ward off anonymous attacks or unforeseen disruptions to the blockchain.
EximChain Governance Model EXIMCHAIN
Hope Liu, CEO of EximChain explained, “A blockchain will be helpful in a global supply chain, where many parties, from manufacturers to logistics operators, are connected across the world in the delivery of a product. This way, a supplier’s reliability and reputation can be verified easily.” Ms. Liu continued, “With a solid record, a supplier can access the credit it needs to fulfill orders. Meanwhile, logistics partners share demand and inventory information across a common ledger and financiers gain more visibility into the global supply chain, so they can extend credit to more small and medium enterprises (SMEs).”
All this can be done without spending time, money and effort on verifying one another or manually trying to reconcile two different databases or ledgers. As more players come onboard, the network effects would bring more efficiencies in a trusted, connected network. They will be able to create decentralized ledgers, reduce transaction costs, and securely share information and value in real time, without going through a centralized agent or trusting intermediaries.
For that to happen, the trust in the way the blockchain is run has to be rock solid. This is achieved through a transparent and resilient governance mechanism that guarantees the necessary security. And this is the reason EximChain has built quadratic voting in a blockchain to be used by global supply chain players. It brings a level of reliability and security that rival blockchain offerings struggle to offer.
More importantly, it answers a big question for an enterprise going beyond simply running proofs of concept on blockchain. There has to be trust in a technology built on a solid foundation.
Written by Sherman Lee
Sherman Lee is a Partner at Zeroth.AI where he focuses on funding AI and blockchain companies, as well as a founder at Raven Protocol. Previously, he founded Rocco.AI and Good Audience.
*Edited based on an article from Forbes