What is Decentralized Governance in Crypto?

Governance in cryptocurrency and blockchain is a big deal. It is one of the major qualities that make the crypto landscape unique and different from the rest of the financial and technological systems. But then, what is it? Let us explain it step by step in easy terms.

Understanding Governance

Governance refers to a way to make decisions and exercise power in a group or organization. In the traditional space, governance is carried out centrally. That is, a small group of people, perhaps those that constitute the board of directors, make decisions on behalf of everybody else.

In the world of crypto, governance looks a little different. Power and decision-making are with all the participants in the network, and not held by an individual few. Hence why it is called decentralized governance or on-chain governance. This means so much in the blockchain space, where much stock is placed on transparency, equity, and community involvement.

In the Cardano network, the ADA token is the unit required in participating in on-chain governance.

How Decentralized Governance Works

Governance on blockchain is manifested in the form of smart contracts and tokens. The logic of how some tokens grant the holder decision-making privileges is generally described by the code contained in the smart contracts. Say you own a token that has been endowed with rights for governance in a decentralized application; this makes your voice heard over major decisions on:

• Upgrades: Decide whether to redevelop the software or improve the project.

• Funding: The need for money or finance that may be required to launch new initiatives or features.

• Rules: The steps for setting guidelines and policies for the community.

This usually takes place through voting, with token holders voting for and against proposals, and the outcome of the vote sets the decision to be taken. This system exists in order for everybody to have their say, and the decisions are taken by what the community wants. To vote, token holders only have to connect their crypto wallet to the network and select either “yes,” “no,” or “abstain.”

Benefits of Decentralized Governance

1. It is more democratic because anyone holding tokens can participate in it.

2. Most of the proposals and results of voting would be on the blockchain, hence everything is open and honest.

3. Decentralizing power reduces the risk of corruption or bias from one person that could happen in centralized systems.

4. Proposals can be voted on relatively quickly thereby boosting efficiency of the larger network.

5. Token holders are incentivized to vote for proposals given the fact that their voices and opinions are heard and implemented.

Challenges of Decentralized Governance

In spite of numerous benefits, decentralized governance faces challenges:

1. Not all the token holders can be sure to be active enough to vote, and hence decisions could lie in a small proportion of the active participants.

2. Voting and proposal procedures can be too complex, especially for new users.

3. Different opinions can result in conflict that could delay decision-making or tear the community apart.

Conclusion

Decentralized governance simply means giving the right of voice to every single person in the decision-making processes of crypto projects.  It gives fairness and transparency, and participation is always welcome within the community. Basically, as the crypto world keeps expanding, it will be impossible to be in the crypto world without paying attention to the trends in the governance of the projects you're into.