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Why a Decentralized Currency Without Governance Isn’t Trustless
A major selling point of cryptocurrencies is their purported trustless nature: you don’t have to trust any one person or entity in order to use them. Generally speaking, most cryptocurrencies employ a trustless and permissionless model. However, most also lack an effective governance mechanism. While some old-school crypto fans may think that governance is optional, in reality it’s the only thing that can actually preserve the original sell point of cryptocurrency, its trustlessness, past its initial release.
Trust is always required at the point of creation
When we introduce a trustless system, there’s always someone you have to trust in the beginning: the guy who created it. As these things don’t spring up out of the void on their own, a person or team must be relied upon to set the whole thing in motion. You have to trust someone to carefully plan and design the system, and trust whatever mechanism is funding and whichever team is backing the operation to get the job done. After the point of creation, then you can have the system running on its own, operating without the need to trust any one person. However, before it exists, you have to trust the creator to make it happen. This point-of-origin trust issue is present in all decentralized projects: you have to trust that someone will get it going.
Any maintenance to the original plan reintroduces trust
After a decentralized cryptocurrency is set in motion, its trustless nature lasts only until modifications need to be made to the original code. A development team has to decide on improvements and implement them, and someone has to organize and fund them. While in proof-of-work systems miners have eventual veto power over any new code changes, this is only really useful to torpedo a really bad idea that’s publicly well-understood, and still leaves developmental control in the hands of a few people, with the network either obliged to follow their recommendations or else kick them to the curb, with little choice in between those two extremes. Largely, a competent and entrenched development team will call the shots, and changes to the code may be introduced that will remove users’ ability to trust using certain elements of the system, harming its entire trustless prospect.
Now, in theory multiple volunteer development teams could compete over writing varying implementations of the code, with only the best being widely implemented, thus keeping a trustless system. In reality, however, developmental power tends to centralize around one well-funded team whose recommendations are expertise are trusted, and which becomes entrenched. Miners and users largely aren’t efficient code auditors, and the incentives just aren’t there to have competing development teams working as actively as a central one, waiting in the wings in case the central group breaks trust.
Without intent and consensus, elements can go rogue
Decentralized cryptocurrencies work through perfect alignment of incentives, which keeps all elements of the ecosystem working in perfect unison and harmony. Sometimes, however, incentives for a particular piece of the ecosystem may fall out of sync with the rest. Miners may desire a transaction fee setup that doesn’t favor the users’ interests, and users may favor changing the mining algorithm, which would naturally upset miners. Long-term investors and businesses may want low fees and high transaction capacity, miners may desire high fees, and mid-term holders may be indifferent as long as the value doesn’t fluctuate wildly unless it’s in their favor.
There are thousands of scenarios where the system can get out of whack, which is perfectly normal and to be expected. However, the danger is that, without a highly-polished consensus mechanism, such an out-of-sync situation can persist. Using an effective governance model can allow the entire ecosystem to come together and address disunion in the system. Coming together with intent, and forming indisputable consensus around an intent, creates a unified vision for how the entire ecosystem should run. This is initially achieved at the project’s conception, but must be reformed from time to time to insure against a split mission, for example a shift from a payments system to a store of value platform.
Self-governing, self-funding systems will ultimately retain their autonomy and trustlessness
At the end of the day, trustless systems still intersect with trust at several important junctures follow their initial creation. The only way to effectively minimize reliance on trust in these situations is to have the system self-fund and employ a governance system to come together with consensus. Only a system that can fund every element it needs to survive, and can clearly come to united decisions, is fit to remain trustless in the long run. In short, only a DAO is built to last.
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