Crypto-currency governance concerns

Johannesburg, 16 Jul 2021
Read time 3min 30sec

In 2016, there was an initial coin offering for the Decentralized Autonomous Organization. This is considered to be one of the biggest crowdfunding ventures, as it raised ethers worth $100 million in less than 48 hours. The operations of this project were not regulated by any institution and were not tied down to a specific region. The smart contracts were mainly used on Ethereum’s network to run the operations of the organisation. The token holders were able to vote for the various projects that they believed were a good investment. 

There was a large group of investors who were pushing for a hard fork form of investment. This meant the investors would be able to include a withdraw function when the code was being created. However, the developers, on the other hand, felt that a soft fork would be the best option. This meant the funds would be frozen and hackers would not be able to use stolen ether tokens.

At the end of the day, the investors had their way and a hard fork was created. This seems to have worked as Ethereum is considered to be one of the best and most valuable crypto. However, trading the DAO coins was halted. One of the things that this 2016 trade brought into sharp focus is the governance issues of crypto-currencies, the red flags that were raised in relation to hacks and the general governance of virtual currencies. At some point, there was a lawsuit against the founders of Tezos.

Why crypto-currency governance is essential

Crypto investors on platforms like Big Money Rush deserve to have the same rights as other shareholders. Experts suggest that the blockchain protocol needs to be regulated to give investors a safe landing. Ethereum and Bitcoin are the main players in the crypto-currency world and they have been making a couple of proposals to improve decentralised finance operations. Governance for the industry can be achieved in so many different ways and this can be a combination of various protocols.

When you take a look at the equity markets, they have a clear structure that defines the recourse for investors. These governance structures protect the interests of the investors and will inhibit rogue operations. Sadly, crypto-currencies do not have such measures in place. A good example is the 2016 DAO, which was a clear example of poor governance in the crypto markets. At a personal level, crypto-currencies put real cash at stake as investors use their money to buy the coins. This means where there is a change in the blockchain protocols, the investors will be affected directly.

In several instances, there have been a few stakeholders who have hijacked crypto protocol. For instance, during the DAO crowdfunding, the stakeholders were able to create Ethereum in two different branches. However, Bitcoin resisted the change initially but later created Bitcoin cash. Without proper governance and voting systems, it becomes hard to keep the industry in check. This exposes the investors to greater risks where they seem to have no say in the changes.

Crypto-currency governance systems in use

Ethereum and Bitcoin seem to be making efforts to put governance systems in place for decentralised representation. Developers and investors have suggested improvement proposals that will enhance the performance and functionality of blockchains. However, there need to be more measures in place as the proposals may not be sufficient on their own. Having a clear framework for governance would be the only solution to the crisis in the crypto-currency industry.

There are calls from different circles to have crypto-currencies regulated. Putting effective governance systems in place may be a great way to protect crypto-currency investors, traders and other stakeholders. 

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