On Governance (Part 1)

Governance ultimately comes down to two questions: who pays and who decides.

A protocol lives inside a broader environment of businesses, standards, and utilities that someone has to fund and evolve over time.

Nobody in 1960 could have predicted concepts like World of Warcraft gold or the ad value of a YouTube influencer, which shows how notions of value keep changing.

Because value and technology keep changing, someone has to decide how a protocol evolves and who pays for it, the same problem visible in legacy banking infrastructure still held together by brittle old COBOL and Java code.

The Cardano protocol is really several separate concepts, the network protocol, the ledger rules, and the consensus rules, each just a snapshot of the best design as of 2020.

Future integration with the BIS and central bank digital currencies could force Cardano's consensus and network protocols to evolve again, even adopting a new architecture like RINA to run nodes over satellites.

Centralized protocols evolve by fiat, but a decentralized ecosystem has no single party who decides, the same problem Linux solved by creating a Linux Foundation once companies like Samsung, Apple, and Google all began relying on the kernel.

The Linux Foundation is funded by its member companies, and in practice the biggest contributors like Google end up with the most influence and control.

Cardano is not just a network or ledger protocol, it is your privacy, your money, your voting, and your property, so letting large actors capture its evolution would just preserve their existing monopolies.

A good governance system needs a fair way to decide who pays and who decides, one that can keep adapting as technology and priorities change over decades.

This ongoing exploration of governance experiments is named Voltaire, after the poet and cynic known for pissing people off.

Voltaire is meant to let ada holders decide about change and spend funds fairly and productively.

Voltaire covers three things: utilities like the Catalyst voting protocol, formerly called Volt, concepts like the CIP process, and experiments like Fund 2's funding rounds.

Since February, the incentivized testnet has been the code base for evolving Voltaire, building on voting research by Bingsheng Zhang covering threshold voting and liquid democracy.

Voltaire runs as a permissioned or permissionless side chain that watches Cardano, and a subset of eligible voters called the ETV get to vote on and act on outcomes.

Running Voltaire as a side chain lets IOG treat it as an experimental sandbox, evolving new voting capabilities on a six to eight week cadence.

Spending funds is the least controversial place to start because mistakes can be corrected, unlike deciding on protocol changes, where a bad call could split the chain like the Bitcoin/Bitcoin Cash or Ethereum/Ethereum Classic forks.

Announced at the Cardano Summit, Voltaire will start with spending, using a funding proposal called a ballot.

Rather than build a new submission system from scratch, IOG partnered with Submittable to handle ballot submissions.

The submission phase, expected in late July, will offer template categories such as running a podcast, hunting scams, core development, marketing, or sponsoring a conference.

Submitted ballots pass through an automated pre-filter to catch junk, spam, and DDoS-style abuse, then move to an innovation management platform where community experts attach ratings and feedback, similar to Amazon book reviews, instead of rejecting them outright.

This creates a professional expert class, similar to venture capitalists, who build reputation evaluating funding requests; Andreas Antonopoulos, who wrote Mastering Bitcoin, shows how someone can hold huge influence despite owning little of the asset, and Cardano's delegated voting could let ada holders lend their voice to such experts, ambassadors like Rick and Philippe of The Cardano Effect, or even outside figures like Elon Musk.

A two-stage voting round, expected around August or September, will use a preference vote followed by a threshold vote, borrowing the choice architecture idea that fewer menu options make decisions easier.

If a fund has only 500000 dollars of ada to spend but the community asks for 2 million, a single up or down vote on every ballot makes for terrible choice architecture and voter fatigue.

A preference vote lets each voter fill a basket with their priority ballots in order of cost until the budget runs out, similar to Borda count or Condorcet methods.

Narrowing hundreds of ballots down to the ones that fit the budget leaves a much smaller set for the following threshold vote, so people can actually study each one.

Unspent funds from a round simply roll over to the next one rather than being forced out the door.

Voltaire and Cardano are deliberately kept as decoupled systems right now, with data manually passed between them until ballot payouts and registration can be fully automated by a smart contract.

Voter registration matters because decision thresholds like majority or supermajority are measured against registered, active voters rather than the entire eligible population, the same way US presidential elections work.

Exchanges are deliberately excluded from Voltaire voting because they do not own the ada they custody, so they should not get to decide Cardano's future.

Registering to vote works by locking ada in a transaction for a set period, which generates a new address that becomes part of the voter snapshot.

Voltaire watches Cardano on chain for those locking transactions, and the new addresses they generate become the voter snapshot, either starting a new permissioned Voltaire round or minting a fresh token for a permissionless one.

Locking funds also structurally excludes exchanges, since regulated exchanges are barred from freezing customer funds, making any attempt to vote with exchange held ada detectable on chain.

After the next hard fork, Daedalus will get a full voting center where users can lock funds with one click and see how long they will stay unavailable.

To fix the pain point where Yoroi users had to enter recovery phrases just to vote, the Catalyst mobile app will instead let people scan a QR code carrying a shielded private key, with DIDs through PRISM extending this further.

Key performance indicators for Voltaire are participation, whether funded ballots actually deliver, and ease of use; as those metrics improve, the voting tools will eventually merge fully on chain with Cardano, either through a hard fork or a smart contract bridge that Duncan Coutts and Dor Garbash will finalize after Goguen and Byron.

Once merged, Voltaire will be fully decentralized on chain, though private services will still spring up around it the way custom tile sets exist for Dwarf Fortress or reskins for Minecraft.

Beyond spending, Voltaire will eventually absorb the CIP process itself, deciding things like monetary policy changes or a shift away from proof of stake, with extra voting rounds for the biggest changes.

Just as the incentivized testnet educated over a thousand small businesses about Ouroboros before they could have informed opinions on protocol parameters, the community needs similar knowledge before taking on the CIP process.

A separate update system, developed with the EU's Horizon 2020 program alongside IBM Research and Guardtime, will eventually be able to enforce whatever the community votes on for CIPs.

Voltaire's sandbox lets Cardano experiment with real money at stake without slowing down the main chain, unlocking community funding for ideas the core team never prioritized.

No cryptocurrency has solved governance yet, though Tezos and Dash made meaningful contributions; Cardano aims to become the first true governance chain and offer governance as a service to wrapped Bitcoin and Litecoin.

Smart contracts and DAOs on Cardano will be able to reuse Voltaire's registration, preference voting, and threshold voting mechanics instead of building their own governance from scratch, with oracles injecting outside information.

Predicts Cardano will eventually replace Bitcoin because it will be the one chain that can prove it can keep evolving to stay relevant decades into the future, something Ethereum cannot claim either.