Voting vs. Signaling in Blockchain Governance

Voting vs. Signaling in Blockchain Governance

Indicators, Decision-Making, and Governance Design

Group decision-making happens all of the time, whether you and your children are determining which board game to play or your consortium is determining which systems integrator to hire.

When we envision “decision-making practices”, we may see people voting on whether or not to take a specific action. We may even envision these parties lobbying each other to choose “the best path forward”. In the governance of blockchain collectives, decision-making involves stakeholders leveraging two distinct indicators; “voting” and “signaling”.[1]

An “Indicator” is any indication made by a stakeholder about their preference for a direction regarding governance decisions. “Votes” and “Signals” can be thought of as two kinds of “deciding” or “direction setting” for the group.

“Signals” are those indicators that come from a bona fide stakeholder party of the given blockchain, and indicate unambiguously a preference by each stakeholder regarding a governance decision for the chain (such as setting an interest rate), but that cost the stakeholder nothing (or nothing important), and the result is in some sense non-binding.

For example, the Ethereum “Carbon Vote” is a signaling device in this fashion — each stakeholder can send a zero-ETH transaction to either a Yes or No destination, and the talliers would count the number of ETH controlled by the sending address, and weight the votes for Yes or No accordingly. Carbon votes are advisory only and have no automatic effect.

“Votes” are those indicators that are binding rather than advisory, and may be automated or not in their effect. A vote (by this definition) is intended to control rather than merely inform or advise.

For example, in a DPoS context a vote for block producer requires a token holder to ‘stake’ or lock up tokens before voting them; the act of unstaking (making the tokens liquid) causes those tokens to be “unvoted,” and the vote totals are computed automatically and used to automatically allocate block producer (and non-producer) status among the registered candidates.

Why Is the Distinction Between Signaling and Voting Important?

The governance of any blockchain requires information flows and information clearing (including but not limited to the subset of data found in voting and/or signalling).

These information flows pass, at a minimum, among the members of the collective. These information flows inspire and facilitate how various actors (members of the collective who have decision rights) come to decisions among themselves.

In the context of a hypothetical representative republic, these would be the information flows among voters, between voters and their representatives in a legislature, and among legislators.

In the context of a hypothetical consortium, these would be the information flows among member companies, between member companies and the consortium’s board members, and among board members.

When to Vote and When to Signal

Voting is useful when those sending the information wish to bring about a deterministic result — to elect A and not B to an office; to pass or reject a given proposal; to amend a motion or adopt a rule.

Signaling is useful when those sending the information wish to inform their agents of a general policy preference, but want or need the agents to be free to interpret this information and how to apply it.

An example of signaling: Bitcoin (written by Nic Carter at cryptogov.net)

Are there systems for non-binding signals or binding votes on governance decisions? If so, please describe them in detail.

In the past, [Bitcoin] miner signaling has been employed to ensure nodes would upgrade to new software versions synchronously; this ended up being used as a de facto signaling mechanism even though this was not the original intention of the mechanism. Also, by choosing to run different node software (BIP148 nodes for instance was the node type run by supporters of the User Activated Soft Fork, in an attempt to convince miners to upgrade), users and service providers could signal their intent to support a given proposal. However there is an acknowledgment that this signaling method is not “sybil-resistant”, in that it can be gamed by an adversary, so it is of limited use.

What is Binding?

It is crucial to the distinction between a vote and a signal, that a vote is “binding”.

Who is bound? How are they bound? What does “binding” even mean?

Binding refers to the requirement that parties involved in a vote must obey the terms detailed in the proposal that was voted on, as well as perform their contractual duties as stated by the proposal.

For the concept of binding to be meaningful, there must be a contract or explicit (or in some cases contextual and implicit) arrangement between the parties casting the votes, and those parties who will carry out the instructions contained in the vote.

For a consortium, each party joining would sign a contract agreeing to be bound by the results of votes. This contract would reference a controlling law and would presumably be enforceable by lawsuit.

Because there is no prior contract and no code-enforced voting, the public mainnets of Ethereum and Bitcoin don’t have votes, only signals.

Leveraging Signaling and Voting in Governance Design

The distinction between signaling and voting is important for those who embark on governance design for blockchains. Many projects need one or both indicators for their decision-making processes to operate effectively.

Through employing the appropriate indicators during your blockchain’s collective decision-making process, you can reduce your odds of dispute, and increase the odds that your members will come to efficient and mutually agreeable decisions.

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[1] While there has yet to be firm guidance issued by any competent authority on the distinction between a ‘vote’ and a ‘signal’, it is useful to distinguish between “voting” vs “signalling” when engaging in the governance design process. Both terms are used, for example, in the Wharton Cryptogovernance Workshop Questionnaire: “non-binding signals [and] binding votes”. The IEEE P2145 Working Group on Blockchain Governance Standards is currently in the process of publishing a Lexical Standard that is expected to include definitions for both terms. This article uses both terms in a manner substantially similar to P2145’s current draft.

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