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Budget System and Governance

David

Well-known member
Over the last few days, I've been thinking about the budget system, its relative importance, and its effect on governance. I've edited a post I made on BCT a few days ago and using those ideas as the core of this post. TroyDASH made an excellent post (https://dashtalk.org/threads/budget-proposals-vs-declarations.8745/) that really deserves a look. I would like to give my thoughts, which are partially inspired by his thread.

When the budget system was first introduced, Evan initially named it "Decentralized Governance by Blockchain" or DGBB for short. That's a great name, but is it really true? Is the budget system really a method for governance?

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First, I think that the budget funding is incredibly important. AFAIK, we are the only currency that can pay for our own development without relying on donations (which are sparse and intermittent) or centralized funding (organizations like Blockstream and MIT that play such a large role in Bitcoin development). By being self-funding, we ensure that we aren't controlled by special interests. Not only that, but we ensure continued development. All of our developers are great people, IMO, but they all ultimately want some sort of remuneration for their work. Some of that can come from asset appreciation, but that could take many years. By paying our developers a salary, albeit currently a small one, we can incentivize them to stick around, and even get new ones to join us.

Think about the potential of self-funding our software and infrastructure development. Other coins have to hope that some exchange will eventually spend the money to integrate them. We have the money to pay for that work ourselves, thus getting us on more exchanges faster. Other coins have to wait and hope somebody takes a chance and spends the money to develop a debit card. We can fund that development and make it happen much faster.

Consider that Bitcoin, if it had the same budget funding that we do (10% of each block reward), would have $19.4 million that they could pay developers, use to jump-start infrastructure projects, use on PR and marketing, etc. Nearly twenty million dollars in budget funds available for their use! (Of course, there will be the halving soon, so it would decrease then.)

Now put it a different way. Dash has a much different emission rate, so imagine that Dash had the same marketcap as Bitcoin. The price of Dash would be $1100, meaning that we'd have roughly $100 million in annual budget funding! (Declining 7% per year if price remains stable.)* This is an enormous amount of money by anybody's standards! And all of it would go toward making Dash better in some way! When you look at it that way, spending some time to safeguard potentially millions of dollars in future funding seems wise.

Second, a big part of what Evan is working on with the "new budget system" is less about budget money and more about governance. Bitcoin's biggest problem isn't blocksize and backlogged transactions; Bitcoin's biggest problem is governance. If Bitcoin had a decently-designed governance system, they could have arrived at consensus long ago. People forget, but the blocksize debate was occurring (in a much more muted form) back in December 2013 when I first got involved in crypto.

Bitcoin's development team is fragmented and their entire blockchain is controlled by the miners, who have greater incentive to dump (to pay bills) than hold. Consequently, the entire Bitcoin economy is dictated by a handful of people (pool operators and large miners) in China (cheap electricity and labor) whose interests are not aligned with the rest of the userbase (more likely to sell than to hold or buy).

Dash has fixed one part of the governance problem, since masternodes are in control of the network (not miners), and since masternodes have a self-enforcing voting method (at least for budget funds). While Evan could certainly pay out of pocket to fly to a conference somewhere, and the masternodes can't prevent it, they can keep him from receiving reimbursement. This serves as a disincentive to behave in a way that the masternodes don't like. In the same way, we can't force a developer to work on a certain thing, but we can cut of his funding if he doesn't. Anybody who has read Freakanomics realizes that money is a powerful factor in nearly all things. The budget system (via the masternodes) controls that money, and thus governance.

*Math:

Approx.: ((576 blocks per day * 365 days per year) * (4.3 block reward * 0.1 budget percentage)) * $1100 = $99,443,520

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To answer my own question: yes, the budget system is definitely an important governance tool. It's certainly not the be-all-end-all, and the dev team realizes this, hence the updates they are working on for 12.1. Right now, the amount of funding (in fiat terms) from the budget system is too low to be used as an effective form of governance, but the system is in place. Once DASH appreciates in value, the amount of funding coming from the budget system can be used as a powerful tool. When developers are being paid a sizeable salary, they will be strongly incentivized to make sure that they comply with the wishes of the network, lest that funding be reduced or eliminated.

TroyDASH (and others before him) very correctly point out that nobody can be forced to do work. The budget system can be used as a way to poll the masternodes to get an official "vote" on how the network feels about an issue, but the network cannot force the dev team to develop new code to enforce the network's wishes. On the other hand, the network could use the budget system to pay an outside developer to implement the software changes it demands, but in order to do this, budget funding (in fiat terms) must be significantly higher. DASH must appreciate in value considerably.

In the end, we are left with an excellent, evolving framework. We are taking the time to get things right while they are relatively easy to change (budget funding at $50,000 per month) rather than waiting until things are much harder to change (when budget funding is at $500,000 per month, for example). Money is an excellent tool for creating proper incentives and disincentives, and as the budget system is tweaked and the value of DASH increases, the budget system will become an even more effective system of governance.

Most important of all, Dash is governed by its masternode network, which determines which software updates to deploy from the Core Team, and is able to "enforce" the network protocol, even to the point of rejecting non-complying blocks. In Bitcoin, miners control the network by deciding which transactions to include in the blockchain and which software updates from Core to accept.

This is an important difference between the two currency networks. Bitcoin miners don't always have their interests aligned with Bitcoin's users, investors, exchanges, and businesses. For example, miners are more likely than users or investors to sell large amounts of coin, because miners have to pay their electricity/payroll expenses. This necessitates selling a significant portion of the bitcoins they mine. A perfect example of this misalignment of incentives is that miners are opposing a change (blocksize increase) that many users/investors and Bitcoin businesses support. Many Bitcoin users and businesses support an increase in the blocksize because it will allow transactions to be completed more quickly and result in less of a transaction backlog, since blocks won't fill up as quickly. Miners, on the other hand, are generally opposed to the change, since it means blocks would take longer to propagate. Since most miners are located in China, and China's Great Firewall already filters (thus slowing) traffic entering the country, miners in China would be at a disadvantage.

Dash is different: because the masternodes are collateralized by 1,000 DASH, those who have the most money at stake actually control the network's governance. Miners are still important for building the blocks and creating the block hashes, but the network is controlled by the same people who have the greatest stake in its success.

Never underestimate the power of proper incentivization. I'm reminded of a story about how the Indian government, knowing that the country was suffering from a plague of rats, offered a bounty for every dead rat that was brought in. At first, the rat population declined steeply, but then quickly spiked. In the end, India had a much greater rat population than it began with. Why? Realizing that they could profit from the government's bounty on dead rats, clever people began breeding them, killing them, and turning them in to the government for payment.

Needless to say, the dead rat payment program didn't last long!
 
Yes. At the current time I truly believe there is no such thing as too much discussion about governance. Governance is the bread and butter of DASH, sets it way apart from other cryptocurrencies. We need to keep exploring what it means for masternodes to have the power of governance, and ways we can leverage that to the network's advantage. Simply having the final decision-making power doesn't automatically mean we are exercising governance well.
 
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