[vc_row][vc_column][vc_column_text]Published in French in “Banque et Stratégie”

Governance of blockchains and Nxt perspective

In 2009, an anonymous entity named Satoshi Nakamoto created a system that has shaken the world in a way that only an open source project can: at first stealthily, being known only by a very small group of cryptographers and open source activists, then slowly more out in the open. By the time it caught the attention of the people whose lives it will probably change, it was already so far developed and disseminated that it is here to stay, leaving us with a far more versatile legacy than it originally intended, and leaving us with the open question of what to do now and how to approach this kind of software which is so inextricably linked to the Open Source movement.

For those of us that are directly involved in this movement falls the task of both communicating clearly the history of open source software and why it works. Many people are not aware that Open Source has a respectable track record when it comes to thinking about governance. It has much to offer and many methods are today respectable ways to engage communities, while little to no due credit is given.

While this article is too short to give an in-depth analysis of governance in collaborative software projects, the 1997 essay “The Cathedral and the Bazaar” by Eric Steven Raymond[1] still provides a good rough overview of the basic structures we can find in open source projects, and thus in blockchain projects.

Why Governance?

All large blockchain platforms have started as grass roots initiatives, usually started by one developer or a small core group of developers. Often it is hard to pinpoint who started the project because a lot of initial developers operated under pseudonym. The only large projects that didn’t follow this model are Ethereum and Bitshares, which partly had a corporate structure when starting, but still tried to incorporate open source development practices.

Governance is of course an issue in such a setup. Especially for software that has the wish to replace parts of financial institutions where large value is at stake, the creation and maintenance of the software is a topic of interest. Especially the security of the software and the reaction speed to malfunctions and bugs is of the essence.

Another problem facing a lot of open source initiatives is their project management structure. A common misunderstanding of the Open Source process is that it is completely anarchistic and has no structure. Historically, this is not true. All successful Open Source projects have generated an extensive, if sometimes unorthodox project management structures, as well as subdivisions tasked with marketing and outreach and sales.

Now that the demand for blockchain solutions is on the rise, we see that many projects are taking steps to professionalise their organisations. In the next section, I will outline the structure of a few of the well-known and used platforms, including the consequences of their solutions so far.

Types of Governance

One of the best articles about Open Source project governance models remains the aforementioned “The Cathedral and the Bazaar”. It describes one of the axes along we can put projects: on one end of the spectrum, we have a more or less centrally led project where most of the contributions are provided by one or a few core developers (the Cathedral model), on the other end we have a more or less fully open submission model where many people are encouraged to contribute to the project (the Bazaar model). On the other axis (which deals with the actual governance) we find closed systems on the one hand (Benevolent Dictator model), and fully participatory models on the other (meritocratic model). Most government models will fall in the grey areas between these extremes.

Open Source Governance

I would like to analyse a few well-known blockchain projects to find out where they are in this spectrum and see what the consequences of their respective choices are.

Bitcoin is of course the seminal blockchain project. Its inventor (or inventors) Satoshi Nakamoto invented the blockchain technology and has started the development of use cases in 2009. Bitcoin therefore is a typical “grass roots” movement, and continues to be so.

Bitcoin’s governance is based on the assumption that the interests of various groups interacting on a Peer to Peer protocol will lead to decisions that benefit the whole. It is not corporately led, but corporations are part of the integral governance structure.

The governance structure consists of developers, miners, entrepeneurs (as proxy for users. Developers are the small group of people creating the code for Bitcoin, miners are the group of people validating transactions and earning bitcoin for this service. Entrepeneurs use bitcoin to further their business ends .[2]

The interests of these groups do not align and it is assumed that, just like in politics via the Trias Politica, these groups will keep each other in balance forestalling a take-over by one of them in line with Bitcoin’s central theme that decentralisation is preferable to centralisation.

Ethereum was invented in 2013 by Vitalik Buterin. It kickstarted with a crowdsale in which 18 million (in 2014) USD worth of bitcoins were raised to incorporate the Ethereum Foundation. It therefore is an open source project which has a corporate organisation attached from the start.

Ethereum development is in the hands of a small group of core developers, although it is unknown who they are exactly. The Ethereum project is supported by the Ethereum Foundation, which seems to be in charge of ETHDEV, which is in charge of most of the core coding.[3]

I have tried to track the structure, but have been unable to come up with a clear overview of the structure of Ethereum’s governance.[4] At the time of writing, it seems there is circumstantial evidence that the main people in Ethereum are active in companies like Slock.it and Consensys, which are for profit companies working with Ethereum.

On the level of governance, Ethereum has the same structure as Bitcoin, working on the assumption that developers, miners and entrepeneurs will maintain a balance that is stable and good for the whole.

The NXT model shares characteristics of both Bitcoin and Ethereum. The same tripod of developers, “miners” and entrepeneurs exists.

Nxt was invented in 2013 by an developer going by the moniker “BCNext” (BitCoinNext). After the project was started and a community had formed, the BCNext developer withdrew, handing over the project to the community. A core group of developers soon formed, part of which is still working on the Nxt software to this day.

Like Bitcoin, Nxt never raised large amounts of funding, nor formed a formal corporation at the start. Thus, a wide range of people could join and work on an open model from the start. The core developers soon consolidated around an early developer going by the name “Jean Luc”, who still is lead developer together with Project Manager Lior Yaffe from Israel.

A few people from the community with an entrepreneurial background soon saw the need for a more formal entity for the project to connect with real world businesses and in 2014 started the Nxt Foundation initiative, which in 2015 lead to the incorporation of the non-profit organisation “Stichting Nxt” in the Netherlands.

The Nxt Foundation has evolved as needed over time, and now consists of five European based persons with complementary skills in sales, marketing and business development and software.

The Foundation acts as promotor and point of contact for anything that concerns the public blockchain version of the NXT software, manages the community around it, initiates development of applications, engages in research and thought leadership and provides structured feedback from users to the core development team.

The Nxt Foundation specifically does not incorporate core developers into its board, because this could lead to conflicts of interest which it wants to avoid.

Since October of 2015, the Nxt Foundation has ran a program to professionalise the way the public Nxt software is managed, and it engages regularly with the Core Developers to make sure users are aware of the production cycle that the software is going through so needed adjustments can be made in a timely fashion.

The Nxt Foundation also serves as a filter between the Core Team and the community and users if needed. Due to the fact that the Foundation members have a background in group dynamics, marketing and sales, they can ensure that information is distributed in a coherent manner, as well as provide useful feedback back to the Core Team in a way that is useful to them. The Foundation also advises, asked and unasked, the Core Development Team about issues that may arise amongst users. To this end, it has set up the first helpdesk ever for its blockchain product.

A direct side effect of the feedback the Nxt Foundation gave to the Core Development Team is their move to offering licenses for corporate users who wish a customised private version of the Nxt software and the development of a new type of blockchain based on Nxt which will be called Ardor.

The Foundation is also always looking to collaborate in initiatives to professionalise our emerging industry. The Nxt Foundation is an Affiliate Member of the Linux Foundation and also an Affiliate of the Hyperledger Project to this very end.[5]

Conclusion

The blockchain industry is still very young, and even though there is a lot of interest in it, this also has the potential for problems at the start. We have seen that various blockchain initiatives are governed in different ways, some with a history of success, while others are trying to break new ground. The Nxt Foundation believes in caution and learning from the[6] past. Project memory is important in order not to repeat mistakes or to duplicate efforts. As such, it believes that standardisation and certification, when informed by the industry itself, can be a good thing. The bitcoin community has historically always resisted such efforts, citing them as outside interference intended to curb innovation. Our governance models, which are in the end based on what our users want are what in the end will decide.

[1] http://www.catb.org/~esr/writings/cathedral-bazaar/cathedral-bazaar/index.html

 

[2] https://bitcoinmagazine.com/articles/the-checks-and-balances-of-bitcoin-governance-1454695089

 

[3] http://ethereum.stackexchange.com/questions/467/what-are-the-roles-of-ethdev-ethcore-and-the-ethereum-foundation

 

[4] https://medium.com/@celeduc/who-controls-ethereum-94fcb4aa3a50#.bock2xb4m

 

[5] http://www.linuxfoundation.jp/content/linux-foundation-welcomes-open-source-experts-security-cloud-and-mobile-technologies

 

[6] https://nxt.org/announcing-ardor/

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