Polkadot's Plan for Governing a Blockchain of Blockchains

Who has the authority to change a public blockchain?


It's a question that has been in the minds of top cryptocurrency developers as the many available networks struggle to serve their diverse, often conflicting stakeholders. But that's not to say there aren't norms and best practices - the ability to make and enforce software changes is generally split between the developers that write the code and the computers, or nodes, that install it.

However, Gavin Wood, ethereum co-founder and one of the leaders of an upcoming blockchain interoperability protocol called Polkadot, is shaking up the status quo with a newly published playbook that designates management power directly to token holders.

Distributed in a token sale last year, DOT, the internal token of the Polkadot network, allows its holders to vote directly on a piece of code, which will then automatically upgrade across the network. A way of bypassing the relationship between developers and nodes, the method is not without its controversy, but according to advocates, it's a step up from what is on offer in most blockchains today.

"This initial proposal for Polkadot governance definitely tries to address the shortcomings of many existing chains, which ended up with community deadlock or continuous splits," Peter Czaban, director of the Web3 foundation, which sponsors the research and development of Polkadot, told CoinDesk.

Stepping back, the problem of governance is at the forefront of the ethereum today, as tension concerning fund recovery has raised critiques of the effectiveness of the platform's processes.

"We might have solved consensus for what happens on the chain, but we're still woefully inadequate at solving consensus for what happens to the chain," Gavin Wood said in an interview.

Since the Parity fund freeze in November (which froze some $176 million of the Polkadot token sale), efforts to recover and redistribute funds have largely fallen silent. According to Wood, this is due in part to the absence of a clear process for measuring the consent for, and enacting, controversial changes.
"Recent challenges in ethereum governance have made it clear that regardless of the specific feelings of community members, it is extremely important to have a clear process for making any irregular protocol changes, be they feature additions or bug fixes."

Clarity of process

And it's this need for a formality that, in part, drove the conception of the Polkadot governance method.

In the long-anticipated blockchain of blockchains, every change to the protocol, even minor changes, must undergo a voting referendum in which DOT owners vote on a piece of code.

"It's possible to be able to vote directly on the piece of code that will replace the previous piece of code, and removes any sort of ambiguity in terms of what the change will actually imply," Czaban explained.

These votes work in tandem with a council that can block malicious proposals, as well as leaning the vote if a larger portion of DOT holders are absent. Then, given a majority vote, the Polkadot code base will shift.

In part, the formal method was needed due to the differences between Polkadot and a more conventional blockchain. Instead of nodes, Polkadot consists of "validators," "nominators," "collators" and "fishermen," each securing the network in different ways.

While some of these resemble a typical blockchain node, because of the technical nature of Polkadot - the heart of the code is self-defining - they're not responsible for adopting changes.

"Validators are powerless to block a change that they personally don't agree with nor are they able to hold the network to ransom," Wood said.

According to Czaban, the use of DOT token holders within this framework was largely a practical choice, and he emphasized, one that could evolve into the future.

"There are many different potentially parties that might be involved in the ecosystem, however, the stakeholders are really the only well quantifiable party that we have at our disposal," Czaban said.

Coin-holder controversies

Token distribution, therefore, has emerged as a major lightning rod.

Half of all DOT tokens were sold in October, with the remaining tokens split between the Web3 Foundation and 20 percent allocated for further distributions.

Because control of the network is pegged to this distribution, as well as an elected council that has the power to veto certain changes, ethereum developer Vlad Zamfir told CoinDesk that he has his suspicions about how the idea will work in practice.

"I'm not an expert on their governance model, but I've had enough of a look to definitively disapprove," he said.

At the ethereum community conference, EthCC, last week, Zamfir presented his ongoing research on governance, a key line of inquiry alongside the construction of ethereum's proof-of-stake protocol, Casper.

A vocal critic of what is called "on-chain governance," Zamfir has written that automated methods of decision-making deny node operators an important role, and as such are "antithetical to the ethos of public blockchains."

In an email to CoinDesk, Zamfir explained, "I don't trust coin holders and don't think they should be more explicitly in charge than any other community members."

However, Wood is unswayed, telling CoinDesk that token holders have an economic incentive to act in the best interests of the network.

"Stakeholders have a very clear and broad incentive to do what's right for the network, which essentially means driving the price up," Wood argued. "It's also unreasonable to believe that node operators are somehow experts on protocol changes."

A good start

Regardless of controversies, the Polkadot governance method has been designed so it can be easily adapted, and this is where its creators believe the key value-add will be.

"This is a very pragmatic proposal," Czaban told CoinDesk, "Something that we can do, we can implement, using what we have right now."

While token holders are the easiest participant to quantify, the governance process could extend to include others in the future.

"As there is more research and understanding into the different mechanisms for governance, and who are the different parties that we might be involved, those can be included," Czaban continued.

The Web3 foundation will also be supporting the next meeting of the Ethereum Magicians in Berlin in July, which as detailed by CoinDesk, is a group of ethereum developers seeking to redefine the process of making changes to the platform.

"We are definitely very interested in trying to drill more deeply into the topic of governance," Czaban said.
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Vitalik: Ether Limit Is a 'Joke' Worth Taking Seriously

That's the gist of a tweetstorm Monday from Vitalik Buterin, in which the ethereum creator said his proposal to create a hard cap on the supply of ether tokens was intended as an April Fool's "meta-joke."


While he said he originally just wanted to see people argue over the merits of fixing the supply, Buterin added that he now believes the idea is "worth considering."

Ethereum Improvement Proposal 960, published April 1, suggested that the ether supply be capped at 120,204,432 units, twice the amount originally sold in 2014. Addressing the cryptocurrency's presently unclear monetary policy, the proposal suggested that a hard cap would "ensure the economic sustainability" of ethereum.

It should not matter whether or not the proposal was written as a joke, Buterin said Monday on Twitter. Because "the words actually were written in the github issue, and the arguments for it are real arguments," he said the suggestions are "very real."

He continued, saying:
"If the community wants fixed supply and people believe that EIP 960 is a good way to achieve that, then it should adopt the proposal. If the community does not, then it should not. This is true regardless of whether or not the original intent was in jest."
Buterin also said some 20 percent of his blog post announcing the EIP was plagiarized from the website of Tron, a digital entertainment blockchain startup.

Yet based on community feedback, Buterin said he "now believes" that developers should look at creating a hard cap. He listed some arguments in favor of the proposal, including that in the long run, "inflationary tokens are a bad idea."

Buterin concluded by saying that the ethereum community has progressed from waiting for the core developers to make every change to debating ideas regardless of who proposes them, but noted that "there's still a long way to go."
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Sharding Is Ushering in Radical Ethereum Designs

So-called "sharding" may still be theoretical, but the promising implications of the concept are becoming more and more real.

At least that's the case on ethereum, where developers are beginning to see the scaling solution, which would essentially split the blockchain into parts that would run on different servers, as an opportunity to test fundamental assumptions about one of the world's largest cryptocurrencies.

Although initial roadmaps are just now being discussed, ambitious coders are already jumping to introduce protocol-level redesigns that could be made possible by the upgrade.

"Sharding is a huge, huge change to the network," said Phil Daian, a researcher at Cornell University's Initiative for Cryptocurrency and Contracts (IC3). "A lot of people think it provides an opportunity to redesign economic models and other aspects of the system."

For Daian, the realization comes on the heels of a developer retreat in Taipei, where, sharding, and other speculative changes, were discussed. Now, along with an all-star team of co-founders including Ari Juels, Lorenz Breidenbach and Florian Tramer, he putting his efforts into an initiative aimed to redesign ethereum to work more efficiently, Project Chicago.

The project is trying to identify exactly what commodities are being traded at the core of ethereum today. By isolating a variety of network elements, like its gas, storage and UTXO transaction data, the team plans to implement protocol-level markets for what they call "crypto commodities."

"We want to look at all of the services and resources the network is providing and say, 'OK, how do we create a market-based system for price discovery and the incentivization of this,'" Daian told CoinDesk in interview.

The researchers were inspired to create the concept after developing a tool called GasToken, which allows ethereum users to store gas (ethereum's token for paying fees on the network) when it's cheap and sell it at a later date when the price is higher.

And while not many people are using the tool yet, it's effectively shone a light on an incentive flaw within the ethereum system in that, as people look to store GasTokens, it further bogs down the ethereum state - the part of the system that keeps track of all possible computations.

Already, the incentive flaw is reigniting discussions about the need for users to pay so-called "rent" on the amount of time they need their data to be stored on the blockchain. But because GasToken incentivizes people to hoard their tokens, "it's a clear artifact to point to show people why today's model is flawed and why rent needs to be introduced," Daian said.

Still, this isn't the only thing the researchers at Project Chicago think needs to be redesigned.

And as such, Daian spoke more broadly about sharding, stating:
"It could actually provide a once-in-a-lifetime opportunity to radically redesign the system and reset people's expectations from scratch."


Futures market inspiration

That's because, according to Project Chicago, at its core, a blockchain is a marketplace, one where miners sell resources allowed by the software to users. Focusing on this, Daian last week drafted an incentive scheme for peer-to-peer networks, one that would not only pay participants for routing transactions, but apply the same logic elsewhere.

"These resources can be anything from block space, to CPU on full nodes, to permanent storage on full nodes, etc. So, we sort of came at this from the beginning, questioning the pricing models that blockchains have today," Daian said.

Created earlier this year, GasToken was the first step in this direction. In practice, it works by exploiting a feature named "gas refund," which is intended to incentivize users to delete data. But with GasToken, it's possible to abuse the feature, encouraging users to store and drop contracts, as timely deletions can return higher gas.

Daian described this as a "fundamental mis-pricing" in ethereum, in that it values computation as equivalent to storage. "Because of that, we've now created a direct financial incentive for people to bloat the state space and store garbage," he said.

As well as revealing inefficiencies in ethereum's incentive structure, GasToken paved the way for a line of inquiry that could be extended deeper into the protocol layer.

"It sort of made us realize that there's this whole under-researched space of how to deal with these these raw resources that are fundamental to different blockchains today," Project Chicago's Tramer told CoinDesk.

By identifying markets for raw resources, Project Chicago intends to pave the way for other financial mechanisms, such as futures. "[We'll be] looking at different kinds of futures for ethereum, computation, storage and network, and how you can build them," Daian said.

According to Tramer, by speculating on the availability or scarcity of the underlying resources over time, such markets could potentially mitigate price volatility, just like on traditional markets.

Daian echoed this, telling CoinDesk:

"There are really concrete analogs to the real world here. The Chicago Mercantile Exchange (CME) was our inspiration for Project Chicago. And I think a lot of real-world problems could have been avoided by a nicer economic model."

Luxury blockchains?

However, Daian is aware that by ramping up the markets, such schemes may not prove popular.

For example, an increased number of incentives could lead to centralization, attracting large-scale players to participate in storing or mining the blockchain in exchange for rewards. Daian deflected this though, stating, "My argument would be that you're essentially saying you've introduced an incentive and now it will be vulnerable to economies of scale."

He continued to say that bigger economies are both positive for security, in increasing the cost of attacks, and an inevitable economic progression, "even if you do fight them,"referring to monero's recent efforts to defend against large-scale mining.

But there are other potential issues to the mindset, as well. While Project Chicago could provide incentivizes for a host of new participants, such schemes would come at a cost.

For example, rent would mean that token issuers pay a yearly fee to host a smart contract on ethereum, which, failing renewal, could lead the contract to be deleted.

According to Daian, it's possible that new charges could drive users away. "It is worth saying that for all of these crypto commodities, a big is risk in my mind is that people sort of like the cheaper, subsidized model," he said.

Plus, in a competitive market for blockchains, new cryptocurrencies could emerge that offer free usage in the short term, "because there's not that much demand, and perhaps there's good supply."

And while the new incentives could be a big improvement for speed, as well as scaling and decentralization, it's not clear how much those attributes are valued by users.
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Vitalik Wants You to Pay to Slow Ethereum's Growth

Could adding a new fee help preserve ethereum in the long term?

It's a contentious statement in light of the debates ongoing across blockchains over how and when users should pay to support what amount to global computing networks. However, the concept is now gaining notable momentum on ethereum, most recently from the creator of the world's second-largest blockchain himself, Vitalik Buterin.

Buterin's concept, described in a recent blog post, revolves around so-called "rent fees," whereby users would be asked to pay to use the network based on how long they'd like their data to remain accessible on the blockchain.

The idea has recently seen interest generally, as ethereum developers have sought to cope with the platform's increased adoption, and, in turn, the increased amount of data being added that all network nodes need to store.

In short, it's a tragedy of the commons issue - if too many people use the resource for free, the network starts taking on the costs itself. And there's plenty of evidence to suggest that there is already reason to worry.

With rising use spurred by popular apps and ICOs, notable developers, including ethereum researchers Vlad Zamfir and Phil Daian, believe the problem needs to be addressed now.

"No one likes talking about rent, but we need to have this conversation," ethereum developer and Thiel fellow Raul Johnson recently tweeted.

"Core developers need to relay this information to the smart contract developer community ASAP to get their opinions on the matter," he continued, adding:
"The current system as it stands is unsustainable."

Fees, explored

Still, Buterin's backing could be a sign that momentum might build around the idea.

So far, he has broached the idea with a pair of proposals on the subject, including a succinct possible solution he calls "a simple and principled way to compute rent fees." And Buterin's first proposal is as simple as its title suggests.

The idea is to compute fees based on a long-term limit on the "state," a slice of special ethereum data that node operators need to store, which tracks who owns the current information about all apps (including user balances, who has posted so much data in, say, a Twitter replacement app and so on).

Under the proposal, state data stored in a node computer's RAM - now about 5GB - will never be allowed to exceed 500 GB. To ensure this, users will have to pay fees based on how long their data is stored. In this way, data is kept in check, since fees will grow if storage creeps toward that limit.

One notable part of Buterin's proposal is that he tries to incorporate a scaling change that ethereum developers have long wanted to add to the platform.

Although the most recent roadmap claims deployment is still years away, "sharding," as it's known, could potentially boost the amount of resources a database can handle by splitting up the data. In ethereum, the idea is, each node wouldn't have to store all of ethereum's historical data - just a slice of it.

"With sharding, the maximum acceptable state size would be per-shard, so the above fees would be decreased by a factor of 100," Buterin said.

Buterin also tries to address another key problem with rent: its bad user-experience. Most rent proposals today would require users to know how long their data will need to live ahead of time, which would be prone to error.

His second proposal explores a way of quashing this annoying guessing game by letting users use their state even after it has expired. Essentially, they would prove that their state existed at a previous point in time, with the help of a cryptographic technique called a "Merkle proof."


Deep-rooted problem

One problem with all this, though, is that fees, kind of like taxes, are never popular.

Bitcoin's years-long debate, for example, mostly centered on fees and the trade-offs associated with them. If fees are increased, less data will be stored, making full nodes easier to run. The downside, of course, is it would make the cryptocurrency more expensive to use.

One question is whether ethereum users and developers will react the same way, arguing "the rent is too damn high." In this way, Johnson worries that suddenly adding extra fees would alarm developers who have already deployed apps on ethereum.

Johnson argues for changes that aren't so knee-jerk and should be phased in slowly to give developers time to adjust.

Not to mention, some believe a similar rent needs to be applied to all cryptocurrencies. Indeed, scaling problems - and the associated fees - are a problem across blockchains.

Daian went as far as to argue that bitcoin needs to apply the same model. Like ethereum, bitcoin currently doesn't charge for the lifetime of a coin.

"Bitcoin is not free of these issues," he said, arguing that its simpler model incentivizes state bloat in a variety of ways, "exposing users to a variety of other consequences of mispriced storage."

Pricing resources to the right degree is such an important area of research, that Daian, a smart contract researcher at IC3, and others at the institute have set up an initiative called Project Chicago dedicated to the effort.

Even if this is a lesser-explored area and researchers haven't yet found a concrete solution, he's optimistic.

Daian concluded:

"No cryptocurrency has figured out good models for pricing these resources thus far, and ethereum's storage rent represents a step in the right direction towards these goals."
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