Democracy has been the model governance system in the West for around three centuries. There are different types of democracy including Liquid Democracy. Democracy is among the most successful governance systems in human history and remains, in many parts of the planet, the standard in free, developed societies. It enables people to express their opinions and be a part of the decision-making process in the communities and countries they are a part of.
In this context, it seems natural that decentralized blockchain networks with their large number of users, should also adopt democratic principles. As a blockchain network grows, governance and the proper allocation of network resources become a priority to ensure fairness, transparency, and sustainability as a decentralized blockchain is run by its users.
So it begs the question:
Is democracy truly the best system for a decentralized blockchain?
In this blog, we’ll discuss this question and its implications.
A deceptively simple question at first, democracy is one of the most studied systems on the planet. There are whole books devoted to its understanding, countless lectures, and entire university specializations centered around this topic.
For this reason, it would not be possible to make an exhaustive presentation of what is democracy in the confines of a single basic article. The subject will have to remain on a general level that discusses democracy at large and not the many variations that exist today.
Regardless, we can still conclude why liquid democracy is being considered for the governance of the Cardano blockchain.
Plus, we can discuss the criticisms of how democracies operate in the current world.
A dictionary definition of democracy would be:
“a system of government by the whole population or all the eligible members of a state, typically through elected representatives.” (Powered by Oxford Languages)
We can see that there are two different types of democracy in its simplest dictionary definition. One where the people of a State govern directly, or one where representatives make decisions: Direct Democracy or Representative Democracy.
Direct Democracy was adopted by the relatively small city-states of Greece with Athens as the most famous of the group.
In a Direct Democracy, the citizens of the political unit gather in a location and discuss the subjects at hand. There is a vote to decide any matter which then is chosen directly with no intermediation by proxy agents.
There are debates before the vote, where opposing factions can elaborate on the merits of their positions. Oratory is one of the most valued skills in such a system, as explaining the subject of the vote convincingly was crucial for success.
Direct democracies tend to be suited for small political institutions as it requires direct participation by those who are deemed as part of the system and are more likely suited for smaller groups of people.
Because it requires direct debate and voting, direct democracy is not feasible in many modern societies with large populations. This is what gave rise to our next example, Representative Democracy.
Representative Democracy is founded on the idea that individuals cannot decide directly and choose representatives to govern for them. The representatives are separated into different governing bodies and these have term limits.
Again, Representative Democracy is a complex topic that can’t be explained in a short article. But, the most important feature of it can be discussed and used to unravel its implications. In this case, society as a whole, is governed by a small group of elected officials.
As a decentralized network is composed of many participants with larger blockchain ecosystems having millions of users, Direct Democracy seems impossible.
Furthermore, Representative Democracy appears to fit more appropriately to the task at hand and should be adopted.
But we know there are many problems with it and perhaps it is not suited for this new type of “organization,” a decentralized blockchain network.
The critics of Representative Democracy are numerous and varied. Many aspects can be put into question, and scholars from all over the world do it in their collective works.
In this blog, we’ll focus on one problem with the ideas of representation which comes from the world of Game Theory – The Principal-Agent.
“The principal-agent problem is a conflict in priorities between the owner of an asset and the person to whom control of the asset has been delegated.” [1]
In the case of a Representative Democracy, the elected officials are the agent while the electorate is the principal. At first, it seems their best interest is to govern on behalf of the electorate. Yet, their position allows them to accumulate more information and resources by acting against the general interest or the people that directly elected them.
Furthermore, the period where they can be made accountable, an election, is very short and happens after long intervals. For this reason, once a representative is chosen and becomes part of the government, his/her incentives to fulfill promises drop dramatically.
The mismatch between the electorate and the elected only grows over time, especially if there are no term limits for the officials. The result is corruption and a disenchanted society that no longer trusts the system.
The Principal-Agent Problem in Representative Democracies is one of great complexity. There are many discussions about how deeply it affects a society, or even if it can be used as an analytic tool.
But to govern a decentralized blockchain, there might be a different choice altogether.
Also known as a “Delegate Democracy” in certain literature, it’s a new type of democracy where citizens are permitted to share their votes and support specific policies rather than having to rely fully on representatives that are subject to other interests. By moving around their allocated power, citizens in this system can directly impact policies. It’s sometimes called “Delegate Democracy” because the power rests more in the hands of the delegates rather than on representatives.
In this type of system, delegates are repositories of voting power. The moment they cast their vote, they do it with the assigned voting power and do it on a case-by-case basis. In one instance, some representatives may have expertise in infrastructure, so citizens delegate more voting power to them, and trust their knowledge.
On other matters that require different expertise, such as social policy, other delegates might be more suited, and the citizens move their power accordingly. In a way, the delegates’ voting power is mutable and changes and adapts to circumstances.
With this system, the Principal-Agent Problem is reduced since at any point a delegate can lose all of their voting power if the citizens perceive a poor performance. In a way, Liquid Democracy has elements of Direct Democracy, as citizens directly impact how voting power migrates, and also Representative Democracy as the delegates vote according to their expertise.
It marries both concepts and leverages decentralized blockchain technology to make it all happen. For this reason, the Cardano blockchain has taken on Liquid Democracy as the system chosen to govern Cardano for this precise reason.
It’s both adaptive and representative and marks a true departure from previous systems of government. In Cardano, liquid democracy is a pillar of the Voltaire era. It focuses on decentralized on-chain governance of the Cardano blockchain by its community of developers, academics, organizations, stake pool operators, and other individuals.
In an upcoming blog, we’ll dive deeper into the Liquid Democracy design for Cardano and also discuss the different subsystems and the process to roll it out onto the network.
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