- Ethereum follows an Off-Chain governance model.
- EIP Authors Introduce Ethereum Improvement Protocols, which are then approved by the community.
What is Governance and How Does it Work?
Governance is the system in which the organization decides how all the major decisions regarding the organization will be taken. For example, the governance model of a centralized organization is mostly that there are separate boards of directors who are responsible for making all the major decisions regarding the organization. The main decision-making power rests in the hands of this board of directors. This board of directors contains investors, founders, CEOs, and MDs. However, this is not the case with decentralized organizations.
Governance in Decentralized Organizations
The main characteristic of decentralized organizations is that they do not have owners. Hence, it creates the question of who will govern the decentralized organizations and who will make the major decisions regarding future changes in the organization. Different DeFi organizations follow different governance protocols.
Two Types of Governance Models
- On-chain Governance Model
The On-Chain model gives users direct permission to vote and be involved in the governance of Ethereum. There is usually a governance token for blockchains that gives users the ability to vote for the changes to be introduced in the blockchain. The code for upcoming changes is already written. Once the community or token holders vote in favor of the change, the already-written code is executed automatically.
- Off-chain governance
This approach is different from the on-chain model. In this type of model, decisions are taken informally, away from the primary code base of the blockchain. In the off-chain governance model, major stakeholders of the blockchain discuss informally and then make the decision that will be implemented. In this model, decisions are taken with the approval of the majority of stakeholders.
Governance Model of Ethereum
Ethereum is a decentralized organization and hence any changes to the organization are brought about only after rigorous planning and testing. The first step for introducing any changes to the Ethereum blockchain is the introduction of the EIP, which stands for Ethereum Improvement Proposal.
This proposal contains all the information regarding the improvements to the network. Once an individual from the developer community of the Ethereum network drafts the EIP, it is rigorously discussed in the community. Many debates occur regarding the upcoming changes to the network. After the rigorous debates and discussions, the community comes to a conclusion.
The next step is implementing the final decision. So the developer community of Ethereum then tests the proposed change on the testnet. After fully testing it, it is introduced on the Ethereum mainnet.
Who is involved in Ethereum? Governance?
- Ethereum Holders
These are the people who hold a significant amount of Ethereum.
- Application Users
These are the people who interact with the applications on the Ethereum blockchain.
- Node Operators
These are the people who verify the transactions on the Ethereum network. To keep it safe and secure
- Tooling Developers
These are the people who write applications that run on the Ethereum network.
- EIP Authors
These people propose changes to the Ethereum protocol. These are those who introduced the EIP (Ethereum Improvement Protocols)
- Protocol Developers
These people are responsible for maintaining the various implementations of the Ethereum network. Examples of some famous implementations are : Go Ethereum, Nethermind, Besu, Erigton, Teku, etc.
