Decred For Investors #8 – What Is On Chain vs. Off Chain Governance?

Tai Zen: When I first met you at the Texas Bitcoin conference, we had discussed the governance, right? Can you share with the audience what the governance is? Because whenever Leo and I talk about on Twitter and on YouTube, people always think that we’re talking about, people like “why do you Asians keep one to put the government on the blockchain?”

Can you explain to the audience what a governance process is? For stop accusing us of 1 governance. We don’t want the government involved in the blockchain.

Marco: Governance is really the word for the auditor, or allowing people to determine what happens next. It’s a decision making the process. But the thing actually that I think is happening in the space first that we need to clarify is that there are two types of voting, two types of governance.

There’s on-chain governance and off-chain governance. I typically like to call the on-chain governance, the binding vote you’re going to make a hard fork and controlled hard fork to add a new feature, for example, make the block size bigger something along those lines. That is critical, cannot go the wrong type of chain.

Then you have these off-chain voting which is signaling. This is where marketing proposals go through, “Hey I would like to spend a thousand dollars on this conference or anything actually you put up”

Tai Zen: We put up the first comprehensive proposal public education, a Decred public education proposal into your test. It is not real, it’s just a proposal that’s in your test right now so everyone can see it working. That’s considered off-chain voting?

Marco: Yes. Correct because that would be a signal so this is our wish list. This is something that we would and you guys actually would provide as a service. The way that would work is if it passes then you guys get a disbursement schedule.

So you say “Okay, I want to disburse all that money in six months.” Then you divide the overall number by six and there’s going to be auto disbursements provided that you meet your milestones. That’s the idea. Those are the two big things though, one of them is an on-chain hard fork, signaling.

Those are the first of two distinct people need to make. By the way, this is actually where a lot of people think that governance is a snooze fest, this is boring, it is a little boring.

Tai Zen: This is a huge problem with Bitcoin because it’s not able to update its network efficiently. It takes years to get it done because there is never a final conclusion on what needs to be done.

Marco: And you end up with a bunch of hard forks as well, which it is. By the way, this folk that thinks that’s a feature. And there are other folks that think that is a terrible thing.

Tai Zen: That’s some of the Bitcoin Maximus that I talked to. Every time you said something wrong with Bitcoin Core, they’ll say “well, that’s a feature, not a bug”. And I’m like “No, it is the bug”. If I get a car and I come home and the transmission doesn’t work, you can’t tell me that’s a feature, not a bug. It doesn’t work.

Marco: I find a whole maximalist thinks a bit silly. We talked about launch earlier. This just makes no sense to me. By the way, there is enough room for multiple players in this space. Let’s go back to the governance thing though.

Tai Zen: You talk about the off-chain and on-chain signaling.

Marco: I’ll start with you on-chain one. For example, we had to adjust an algorithm that had too much volatility. It was the ticket price that was going shooting up in price and then cratering down. That was unhealthy for our network.

So we did as we wrote the code, we validated the code and then we put it up for on-chain voting. That would have been a controversial change because we were actually going to make mining a little bit less profitable because the miners were actually abusing the volatility so they would turn on all their hashing power at the bottom. Pick up all these tickets for cheap.

Then once the price shot up again, they turned off all their main power so difficulty had to be adjusted. Blockchain would move a little slower. So bad for the network, good for the miners.

We changed the algorithm around and we were going to flatten out and therefore it meant that they could no longer play this ping pong game. That would have been controversial because the miners and Bitcoin would have never accepted that.

Tai Zen: No, they wouldn’t.

Marco: If you’re a miner, you would not vote for that. If I’m a miner, I wouldn’t vote that.

Tai Zen: Yeah. And you’re the one running the code.

Marco: Yes. Almost. But I understand the economics behind this. If I have 10 racks of 4,5 million dollars worth of equipment and I have to pay back, I’m going to pay that back. I get the incentive that I have, not debating it.

But for the network it’s bad, for the holders it’s bad. This is where to change come in, so we adjust the algorithm, made it work right. Then we voted on it and guess what it passed with banana public numbers 98 to 2 percent. Because we know all the holders really want it.

Leon: And the miners are not holding.

Marco: Right. The miners are selling immediately to pay off that the four and a half million dollars we’re talking about. So even though that would have been a very contentious controversial change with people screaming in their Twitter if it passed without.

Tai Zen: I don’t see how that would have passed in the Bitcoin now.

Marco: It was a non-event.

Tai Zen: Let me ask you this. I understand that you guys are the only large chain project out there that I know of that’s doing on-chain voting and governance. Is that right?

Marco: As far as I know that is accurate. So how do I know if somebody has popped up at this point that has picked up that feature? But we’ve actually been like that since early 2017 and the code went into the tree, I want to say in December 2016.

When that code was developed through November, October in that timeframe. The code has been around for a while.

Tai Zen: It involves governance project, governance system, right? My understanding is that, let’s say I have 100 Decred and Leon only has 10 Decred. I have more stake in the system so my vote holds more weight.

Marco: That’s not exactly how I talk.

Tai Zen: So yes or no? Can you explain that? Because there are some people out there claiming that, the people with all the money get to make all the votes into crap.

Marco: That is actually a feature, but it’s slightly more complicated than that. But the way worse is the more stake you have, the more often you get the vote. That does inherently in the statistics. If you have 10000 tickets which are nobody has…

Tai Zen: What is a ticket?

Marco: It is what allows you to vote, so you need to have a ticket to vote.

Tai Zen: How does someone qualified to get a ticket?

Marco: You have to purchase a ticket. Every block there are 20 tickets that can be purchased. So you have to put down whatever the amount of money is, you have to lock it up for the duration, up until you vote that money or the coins have been locked away.

Once you vote you get that back, plus a reward. You could park a portion of the block reward for…

Tai Zen: For contributing to voting.

Marco: Correct. So there is a real incentive. Even if you don’t want to vote on the features, you can still reap the rewards from that. Sorry has completely skipped over that.

Leon: So I can use Decred to buy these tickets that my Decred is locked up and I vote. And then after the vote passes, I get those Decred back with a bonus.

Marco: That’s correct. That’s exactly how it works for you. It gets locked up for the duration of the vote and you get part of the block reward. I write notes, I think 1.6 Decred.

Leon: The more people that vote, the less reward I get, is that?

Marco: No. Three to five votes on the block and the minor is this. The minor really wants to have a vote because they get proportionately paid by the number of votes. So having five votes gives them the full award.

If they only get three tickets they only get 60% of reward, so they really want everybody to know. We really made voting expensive for the minor when it doesn’t happen, so in other words, they’re not going to empty blocks in really profitable for the people that want to vote right. So they will continue to vote because we want community participation.

Tai Zen: So someone that has more Decred tokens can buy more tickets.

Marco: That’s correct. But that is actually a feature so the way we look at this is that if you are a holder of a lot of Decred and you have a business around this.

Then there is somebody without any Decred or a single Decred, authentic Decred, that would not be proportional representation. That was actually designed into the system to let bigger shareholders if you will have a bigger vote.

Tai Zen: So you have more skin in the game in that Decred network and you have more say so that’s about how the network should be upgrading or what direction it should go.

Marco: That is exactly right.

Tai Zen: If you guys want to see how their voting system works, you can go to their test net and look at the proposal that Leon and I submitted and you guys can follow along. We did it as an example to show what it can do, what the community can do and not do.

So whether regardless if the proposal gets approved or gets denied in the future, it’s still a win for the entire blockchain community because we can demonstrate how a formal proposal should be done, and how the community should vote on it, instead of insisting bickering about it, arguing about it on Twitter and all that nonsense. We should vote on it and then get it implemented.

Marco: I really appreciate you doing that by the way because we only have this proposal to work. Let’s call them a little silly. And your bet on it was actually a case of visible cost is going to be the time for him to it. It had all the elements of it.

In fact, I’m probably gonna start using that if you don’t mind about the proposal. That’s why I did it because a lot of these are the five headings if you want to put on there. So this is how you do it. I really truly appreciate it. Actually maybe you should tweet out the link to it so that people can actually look at it.

Tai Zen: Okay. Yeah. I love to do that. Along with this video, I’ll put it at the bottom of this video too.

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