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Crypto Terms:  Letter O
Jun 19, 2023 |
updated Apr 02, 2024

What is Off-Chain Governance?

Off-Chain Governance Meaning:
Off-Chain Governance - is a blockchain governance model that allows every stakeholder to have a say in public blockchains' decision-making via collaboration.
3 minutes

Let's find out Off-Chain Governance meaning, definition in crypto, what is Off-Chain Governance, and all other detailed facts.

When an Off-Chain Governance is established, public blockchain stakeholders challenge one another for control by trying to persuade the majority to join and promote their cause. Thus it has similarities with how politics work in real life. Stakeholders promote their interests via collaboration platforms like social media and forums, or during events, conferences, and other gatherings.

Off-chain governance network tries to consider everyone’s interests, but the power of decision-making mostly fluctuates between the core development team members and miners.

The most popular blockchain platforms like Bitcoin or Ethereum use their own off-chain governance variation. For example, Bitcoin users don’t receive any inherent voting rights just by owning BTC since Bitcoin hasn’t introduced an on-chain governance network or governance tokens. The possession of BTC can only do so much, such as make your voice heard in off-chain conversations.

Moreover, it doesn’t matter how many blocks a Bitcoin miner has verified, that mining power does not translate to governance power. It’s important to note that no matter what hash rate percentage you reach when mining, you won’t be rewarded with governance rights. Your responsibility for verifying and adding transactions to the blockchain always stays the same just like the type of rewards you receive.

Before any major changes are implemented within Bitcoin or Ethereum, the proposal is discussed by the crucial members of the platform. They include the members of the core development team, miners, researchers, and end-users. In addition, Bitcoin allows anyone to attend its core development team’s online meetings.

Ethereum also governs its platform in a similar fashion as Bitcoin. Vitalik Buterin who is often considered the crypto hero is in charge of the core development team of Ethereum. 

The process of making important decisions off-chain starts much as it does on-chain.  The core development team brings forward a formal proposal for implementing new code like Bitcoin improvement proposal (BIP) or Ethereum improvement proposal (EIP) which basically are improvement suggestions. In the latter cases, they’re held in the project’s official repository on Microsoft or GitHub.

Then stakeholders come together to discuss the proposal and express their approval or disapproval of it. It’s much like game theory

Node operators, also known as validators, and miners are consulted to find out whether they approve of upgrading the software. If everyone approves, then the code is implemented without a hassle. Although it almost never goes that smoothly. 

Each major update is announced in advance in order to keep the developers and stakeholders on the same page.

Now, in case of disagreement between stakeholders, there are two possible courses of action:

  • Try to change the opinion of stakeholders by using persuasion techniques to bring the other stakeholders around;
  • Don’t try to change the stakeholders' opinions. Instead, enforce the hard fork protocol. This way they’re able to make relevant and agreed-upon changes.