In grad school, I attended a few seminars on the topic of game theory. I lament that, at that time, I did not accept game theory as a serious discipline. With the passage of time, I've come to realize that the principles that define game theory are evidenced everywhere. For example, one could argue that the study of economics is a study of game theory. Game theory applies to markets. Game theory applies to politics. You may remember John Nash applying game theory to suiting—human mating—in the movie A Beautiful Mind.
I was in an audience where David Friedman explained a fundamental flaw in political democracy: any random voter has very little motivation to research any potential outcome governed by democratic process. Most likely, one individual vote will not have any influence on the outcome of an election. Imagine if you spent a great deal of time researching potential presidential hopefuls for the 2024 election and identified Sarah Harberter from Indiana as the perfect candidate. Imagine backing up this research with a 500-page, well-cited report. How would you reap the rewards of your research? Where is the incentive? All apologies to anyone named Sarah Harberter. The name is fictional and introduced soley for the purposes of this article.
Publicly-traded companies make decisions via a different flavor of democracy. In a shareholder meeting, investors who have a larger stake in the company, will exercise more influence over the outcome of those decisions. This incentive may encourage, for example, a 10% shareholder to hire people to perform independent research before a decision is made. Though there is some alignment of incentives—both the company and the investors want to make money—it may be in the company's best interest to sometimes deceive those investors. Investors know of this potentiality and will often perform necessary due diligence to avoid deception. Incentives.
A particularly influential aspect of my personal and professional life has been affected by this second type of voting—the type of voting where the people most impacted by a decision have the most say. But these votes are not the votes of shareholders. These votes reflect the desire of the Dash network manifested as a Decentralized Autonomous Organization or DAO (more on the DAO later). This DAO elected me to be one of the supervisors for the Dash Investment Foundation or DIF. And that committee of supervisors elected me to be their chair. These are the votes that matter most in my life.
Governance is a neat word and fascinating concept. Merriam-Webster defines governance as "the act or process of governing or overseeing the control and direction of something." I govern my body. Your household governs your home, family, and finances. Corporate charters and by-laws and shareholders govern companies. Well-functioning governance can be elegant and provide great value.
In the past, I have given talks where I assert the most important gift that Satoshi Nakamoto granted the world was a robust and well-defined form of governance for a specific use case—cryptocurrency. Nakamoto's software includes all the rules that govern what makes money, money, baked-in up front. But that set of rules, though interesting and necessary, isn't the innovative element of the design. The bigger deal is that the software enforces these rules upon itself and the network—software governing software in the wild. Rouge software trying to spoof the network is automatically detected and ignored. Nakamoto designed a computer network that both
- derives its governance from and
- enforces its governance on the network.
Many physicists think that the universe arose from a singularity. I'm trying to describe a singularity that results from governance.
The Dash project (dash, as in digital cash) implemented a unique approach to this design that seems to have best leveraged and extended this governance model. A first governance change served to promote, through financial incentive, deployment of a more robust, network-servicing infrastructure. Bitcoin provides an incentive for deploying compute-power in the form of mining only. Dash provides incentives that encourage compute-power for additional and augmenting tasks needed by the network. We call these compute resources masternodes. A second governance change enabled the masternode operators to allocate (through a vote) a designated portion of network-generated funds to proposed projects that target improvement or strengthening of the Dash project, network, and protocol. This aspect to the governance model is called a Decentralized Autonomous Organization, or DAO.
Dash Core Group is one company that has had consistent funding from the network. Dash Core Group shepherds the development, maintenance, and enhancement of the core software that makes the network possible. This augmentation to the governance model (the DAO) was the first step towards extending the protocol's governance beyond the hardware. The Dash network, through a decentralized decision-making process, is enabled to fund or not fund any project or organization.
The formation of the Dash Investment Foundation (the DIF) was another milestone illustrating the power of this governance model. This foundation operates in the real world, acting as a legal entity in the same way any other corporation does. The foundation is only in its second year of operation but has recently gone under contract to enable the Dash network to receive equity in ReadyRaider, an esports platform that exclusively accepts dash. So the governance cascade continues. With the foundation, the Dash network governs a corporation. A corporation that can then partner with other entities in ways that are ultimately governed by the network.
It's been a long road, but if you will allow me a bit of tongue-in-cheek: governance led to governance that led to infrastructure that plugs into the legal system of governance of governments. I can't adequately express the excitement and wonder that this imparts on me. Nerds, governed by governments, made a governance that did not need a government which can now govern an entity that is recognized by governments. Excuse me if I may be a bit emphatic: shit just got real.