QTUM: Building a Better Blockchain Governance

Bitcoin has a governance problem.

Satoshi Nakamoto peered into the mists of time and saw the future. He saw everything from the rise of micropayments to the inevitability of ASICs coming to dominate mining.

But he missed one critical piece of the puzzle:

How do we change the system itself?

In other words, how do we agree to change the Bitcoin software?

Now a new community called QTUM, short for Quantum, thinks they have the answer. They rocketed to early ICO success, raising $15 million dollars with the idea of mashing up the flexibility of the Ethereum virtual machine and the stability of the Bitcoin blockchain. But to understand how they plan to solve the governance problem, we need to understand just how we got here in the first place.

Remember that Bitcoin is decentralized. That means there are multiple people with dramatically different agendas holding the keys to the kingdom. There are also hostile actors and good ones. And in the world of Bitcoin, people have to agree to upgrade the system. Actually a lot of people have to agree. For example, 90% have to signal support for SegWit upgrade to go live.

Support currently stands at under 50%.

There’s also an alternative proposal, SegWit2X, also called the New York agreement, because an influential group of businesses and miners announced it at Consensus 2017 in New York City. Now, miraculously, 90% of miners are signaling for SegWit2X, which intends to implement SegWit and a 2MB hard fork of the blockchain.

That’s an amazing achievement if it holds. It means that somehow 90% of a group of people managed to agree on something.

I want you to understand just how unique that really is for human beings.

People can barely agree on anything, let alone anything important. Heck, put half a dozen people in a room and watch them try and pick a restaurant to eat at.

Look at how polarized politics is today in the United States. In 1994, just 30% of liberals stuck to “their side” on most issues, along with 45% of conservatives. But by 2015, 60% of liberals were taking a hard stance on nearly everything, along with 53% of conservatives. That makes it nearly impossible to reach a compromise. And consensus is about compromise. That’s the nature of democracy.

Graphic from Pew Research Center.

The Founding Fathers of the United States set a very high bar for Constitutional changes — a two-thirds majority — because they knew it was nearly impossible to get two-thirds of people to agree on anything but the most important issues.

Even if Bitcoin manages to make this upgrade, other problems may never reach that required 90% agreement.

It could be for any number of reasons. It might simply be because the issue is too technical and the average person can’t understand it properly. It could be political, for example a change that appears to make a cryptocurrency more centralized or less robust. It could be economic, for example a change that reduces fees. Then even if the change is valuable to the network, the miners won’t stand behind it because it takes money from their pockets.

Any or all of these failures could haunt a crypto for years, making it harder for them to gain traction or scale to meet the needs of the community. What’s needed is a better crypto governance protocol.

QTUM is part of a new generation of cryptocurrencies that look to build governance right into the system from the beginning. A second one is Tezos, backed by some big VCs and currently raking in the cash on their ICO. But both projects take a very different approach to how that governance works.

Of the two, Tezos is the more radical approach. According to its position paper, it looks to “represent a blockchain protocol in the most general way possible while attempting to remain as efficient as a native protocol.” It divides its network into three parts:

1. Network
2. Consensus
3. Transactions

The network defines things like block size and how quickly transactions are confirmed. The network defines the consensus methodology, such as Proof of Work vs Proof of Stake. And lastly, transactions outline just what makes a transaction valid.

Tezos wants to make everything open to change, from the relatively uncontroversial move from 1MB to 2MB to infinitely more challenging and tricky changes like the very nature of what makes a transaction valid. Imagine if everyone on Bitcoin could vote to suddenly move from Proof of Work to Proof of Stake? That’s the power Tezos promises to hand its community.

While in the long run this may be how an eventual world-dominating blockchain will run, it does beg the question of whether we’re ready for such power right now. There’s currently no reference model for anything like this, anywhere in today’s world. So I foresee a bumpy road ahead, even if it’s a road worth traveling.

In contrast, Jordan Earls, one of the co-founders of the QTUM project, told me that they take a more “conservative approach.” They don’t want to “move too fast and break things.”

“Move fast and break things” is the mantra of today’s DevOps-style web-apps, popularized by Gene Kim and the Phoenix Project, but it doesn’t work as well when there’s billions of dollars on the line and any change can cause people to lose their money.

QTUM have chosen to focus on the less controversial changes to the network part of the block, like changing the block size, as well as the basic economics of the system, such as setting a minimum “gas” price for running Ethereum Solidity smart contracts. Rather than allow core changes to the way the blockchain functions, they’re looking at “optimizing the blockchain during its operation and being able to respond quickly to attacks.”

For example, when someone finds a bug in a contract that lets them rip through processing power on the network for just a few pennies, you get a DDoS attack. QTUM want to adjust the gas price to crush that kind of assault on the network swiftly, something Ethereum has struggled with lately. Their testnet just went live, so if you’re a developer, you can start to play around with the code now.

They’ve also built-in some more powerful changes that aren’t yet ready for release. This next one you’re hearing about here first, because they haven’t announced it yet, and since it’s not fully baked it’s still just dormant in the test code. They call it “mutualized proof of stake.” The idea is to prevent spamming the network with transactions. Right now, whoever creates the block gets all the fees. So an attacker could benefit from pounding the network with those transactions if they can get a block enshrined in the chain.

Mutualized PoS sets it up so fees are shared with other stakers. This makes assaults on the network a lot more expensive. After you create a block, your address is registered in the blockchain and 500 blocks later you will get 10 rewards of transaction fees and minted coins. It’s a mod to the reward and the incentive system. The miner gets some of the fees, but so does a random group of other miners. So the network is incentivized to share a bit of the fees to other miners.

It’s not stable enough for the main testnet, but expect to see it in action soon.

Lastly, QTUM does have plans for more radical upgrades, such as letting the system monitor block sizes and automatically trigger votes to increase that size when needed. They’d also love to figure out a way to dynamically adjust gas prices, but Jordan told me they’ve tabled it for now, because they haven’t hit on an approach that really works.

All of this adds up to “a simpler is better” approach to blockchain innovation. QTUM doesn’t want to adopt the most radical technologies right off the bat. They don’t want to their users to be the guinea pigs. Instead, they’re looking to take the best ideas from other projects when they’re fully fleshed out and working smoothly.

That’s a lot like an enterprise software approach. Instead of adopting the tech from the darling open source project of the moment, it’s better to let the winners and losers shake out, rather than try to pick the winners up front.

If, QTUM are right, they might just have the answer to a better blockchain governance. And that’s something the whole blockchain community needs.

In a world where cryptocurrency prices fluctuate wildly day-to-day, a little rock-solid long-term stability could go a long way.

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If you love crypto as much as I do, come on over and join DecStack, the Virtual Co-Working Spot for CryptoCurrency and Decentralized App Projects, where you can rub elbows with multiple projects across the space. It’s totally free forever. Just come on in and socialize, work together, share code and ideas. Make your ideas better through feedback. Find new friends. Meet your new family.

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For the QTUM Slack, you can get your invite link right here.

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A bit about me: I’m an author, engineer and serial entrepreneur. During the last two decades, I’ve covered a broad range of tech from Linux to virtualization and containers.

You might like a copy of my first novel, The Scorpion Game, because it’s free. Readers have called it “the first serious competition to Neuromancer” and “like a double shot of fine whiskey after drinking watered down beer for weeks.”

You can also join my private Facebook group, the Nanopunk Posthuman Assassins, where we discuss all things tech, sci-fi, fantasy and more.

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Thanks for reading!