Circa November 2018 Levi Samama and Shahar Larry published the Coalichain Whitepaper. Below is the first section of that whitepaper [with minor edits] that deals with the context and background of governance of groups. Coalichain is dedicated to the idea of accountable and “liquid” governance of groups [from a school’s PTA to countries]. It only stands to reason that the ideas developed and presented in a whitepaper for a web3 governance platform will be pertinent to any web3 DAO. We might publish other sections of the whitepaper here [with or without modifications], as their relevance surfaces.

We live in Groups

People live in groups.

We all belong to many groups: our neighborhood, town, district, country or continent, at work, in unions, where we volunteer, where we play, where we study, on social media.

What do we mean, at least in this paper, when we say "Group"?

Think of a group as a set of people that 1) identify themselves as belonging to that set, and 2) are accepted by (enough) other members of the set as belonging to that set.

The source of this identification of belonging can stem from multiple sources. It could be a common purpose, geography, language, preference, and even medical condition. As long as enough people in that group recognize and agree on the identifier.

We employ different forms of government to manage, guide and operate our groups.

Unpacking Group Governance

Governance systems describe the ways in which groups manage, guide and operate. Governance includes the different ways in which decisions are made, policy, purpose and rules are set and enforced, and how disputes are settled in a group.

When we think about governance, we must first go beyond the popular notion of the word and realize that it does not necessitate centricity. Governance must be an efficient, effective means of realizing its group's purpose.

Who Sets the Policy?

Think of corporate governance. The shareholders can express their wants in the general assembly and in their buy, sell or hold (in)actions. The company's board of directors is supposed to represent the interest of the shareholders. The Executive Suite is responsible for executing the directions of the board. And yet, the question remains, who really sets the policy? Who defines the agenda? In one company a strong CEO can be the dominant force in setting the policy, in another, it is the board and in a third, it can be the union representing the employees. If you think about the groups that you are members of, you will soon see that in most, if not all, of them the policy is set by a small group of people - the de-facto leadership.

Representative Democracy - Compromise and Proxy Power

We all know democracy is not perfect. Nevertheless, most of us think it is the “least worst” form of governance. In order for democracy to be effective and efficient we needed to make some concessions. The most apparent was moving from direct and pure democracy to the representative model. It makes sense:

• Consensus – It is not clear that it is easy or practical to decipher the wants and purpose of the group’s members. How do you decide what the “group wants” if on a specific issue there are diametrical positions that are split 70/30 among its members? Do you ignore the 30%? In all cases? Representative democracy acknowledges this problem and solves it by transferring the decision-making power to a smaller group that can more easily get to a reasonable consensus.

• Cost – Even if we could find a way to measure consensus and balance the different variables in a reasonable way, in large groups, asking the members every time a decision needs to be made, what they think, is too expensive to be practical.

• Expedience – A small, authoritative set of representatives has the ability to act fast. Deliberating every decision with the entire membership body is many times too slow to be effective.

• Expertise – Some decisions require knowledge and expertise that are not common.

Simply put, the day-to-day operations of a group, be it a country or a start-up company, are made out of many decisions. Too many for the group members to consider and vote on. A CEO of, for example, a hospital cannot ask her board every time she wants to approve the procurement of bed sheets. For the CEO to perform her job she needs the freedom and power to act independently. Moreover, imagine her chief of surgery considering the best medical procedure to treat a patient. Asking the entire body of stakeholders is unlikely to yield the best decision. Most people will not have the required knowledge to understand the pros and cons. Asking a select group of experienced doctors is a far more promising avenue. The representative democracy allows group members to transfer their right to affect decisions (delegate power) to a smaller group of representatives.

So, we compromised and gave our representatives the right to decide for us, to vote for us, and the power to act on our behalf. Since we cannot effectively monitor their every action and since we have to give them enough freedom to operate, we effectively allow them to set the policy that dictates the operations, allocation of resources and the issues that demand decisions. Too many times, this led to corruption.

Power attracts pathological personalities

So? Is corruption necessarily a bad thing?

Yes! It is a bad thing. It seems trivial, but given people’s apathy nowadays, we need to say it. The roots of this problem of corruption stem from a misunderstanding of representation. We assume that representatives should have power (ideally derived from their people). This is simply not the case. Representatives are not supposed to have any power at all. Ideally, they are supposed to be a vehicle of power, carrying and using the group members’ power (not their own).

We gave them power as a compromise and inadvertently provided them with almost unchecked power. Putting so much power in the hands of very few representatives, especially if they are not accountable, or if accountability mechanisms are deficient, means they are likely to promote their own interests over those of the group’s. Moreover, power is seductive. Baron Acton famously wrote: "Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men..." Just under a 100 years later, in Postman [1985], David Brin wrote: "It’s said that 'power corrupts,' but actually it’s more true that power attracts the corruptible." [That same year, Frank Herbert published Chapter House Dune and in it he wrote something very similar: “All governments suffer a recurring problem: Power attracts pathological personalities. It is not that power corrupts but that it is magnetic to the corruptible.”] Either way we are stuck with corruption.

The fact that the representatives’ actions should be transparent and open to oversight, and that the group members can decide not to elect them next time – should be sufficient deterrents from representatives taking advantage of their power. Well, they are not (sufficient deterrents).

How Groups Should Be

We want our groups to be effective and efficient in realizing the purpose, sustainable in being robust, stable and adaptive, and just (fair) in execution.

These categories are not mutually exclusive, and they echo each other. For example, if we are fair in execution, group members feel better and therefore are more likely to stay and support it making it more effective and more sustainable.

Unpacking these terms, we identify additional required attributes:

• Incorruptible and Transparent – Avoid/prevent the abuse of power by the few

• Trustworthy – Ensure that records/transactions are immutable

• Equitable – Distribute resources and value fairly

• Unbiased – Allowing for anonymity and removing personal judgment in decision making, where it is possible and useful, will reduce bias

• Ethical – Act in a way that is congruent with what the group members believe to be self-evident and inalienable rights.

• Productive – Avoid waste, optimize efficiency and keep cost effective

Escapism

This paper does not describe an agenda to replace governments. In fact, it describes a decentralized platform that abdicates the agenda and gives it back to the people that make the groups – for them to decide how to run their lives. Nevertheless, we would like to demonstrate a few points by looking at facts from the domain of general elections and systems of governance of countries. General election is an easy example because it is usually public, and therefore provides a lot of insightful information. The sentiments we identified are found, if you think about it, in almost every other governance system of any other group.

Here’s the gist of it. There seems to be a growing consensus that democracy is what people need and at the same time there is a constant decline in participation. It is as if we assimilated the concept of democracy, and once we did that, we “checked out”. The reason for this trend of disengagement and escapism stems from the growing feeling that what we do does not matter and will not affect how things are run, so why bother?

Confidence in Democracy is Falling

According to Freedom House, in 2021 20.3% of the global population lived in countries that had reasonably free and fair elections. That is nearly half what it was in 2019 (39%), with close to 1.5 billion additional people living under less-than-free regimes. According to the World Bank, 80-90% of people [depending on region] think that elections are important for economic development, while only 30-60% have confidence in the honesty of the elections. Indeed, the influence of interest groups on elections is increasing. In 2022, in the US alone lobbying spend exceeded $4bn USD. A paper published in 2009 in the Journal of Law and Politics showed that lobbying delivered $220 USD for every dollar spent (22,000% ROI).

Voters Disengaging

With low levels of confidence, fewer voters exercise their right. Voter turnout rates in democratic countries are quite low and have been steadily declining. Below is a graph showing the voter turnout in US presidential elections. The trend is clear.

According to a World Bank report from 2017 election turnout over the last 25 years dropped by more than 10%.

Expensive Process

Elections are expensive. In the US the combined direct cost of the 2012 presidential elections and the 2014 midterm elections was around $13bn USD. With 126 million voters, that is around $100 USD per voter. Although the US spend on elections is extraordinarily high, even at $50 USD or $10 USD, it is an expensive venture for such poor results.

More than Voting

Wrong Challenges / Right Opportunity

Over the past couple of decades there has been significant work done in developing electronic voting. These development tracks are not the concern of this paper. Application of blockchain technology and especially the ability to transact, directly, peer to peer, is not about progressing from the paper ballot.

So, what is it about? Well, some claim that it is about a secure vote. In fact, most of the “blockchain democracy” ventures out there either state this as their prime driver or give it a significant role. The problem with this approach is that it addresses a challenge that does not exist. Election fraud is a very rare and infrequent problem (in democracies).

Indeed, most blockchain-based governance solutions focus on the tokenization of the vote. If we transfer our vote power to a token that can be moved and used in different ways, we get all kinds of cool advantages. For example, (as is shown in Democracy Earth), it will allow us to make the democratic “liquid”, i.e., voters will be able to split their vote and “micro-transact” with their voting power on different issues. That’s pretty cool. We like Democracy Earth. Nevertheless, they are the exception. Most governance ventures do not transcend a cyber security, potential problem of secure voting.

“Currencization” of Influence

In our work, we identified a key element, missed by others. If we are successful in promoting the participation of the public in the governance of their groups, we will see a new type of human activity. One that was not common before. Much the same way that touchscreens and smartphones changed the way we behave and act. People and organizations are soon attracted to these new types of human activities and try to provide value and profit from them. For example, we are now used to being exposed to advertising while playing games on our smartphone. Attention is a new type of “currency” and it is measured and traded in fungible units of impressions or time. In the same way we can say that the activity of stating one’s opinion on various topics relating to the governance of one’s group, is a new value-creating activity.  This new activity will create value and there’s no reason we will not be able to harness it as a currency. We call this the currencization of influence. It is important to make clear that we see the blockchain, cryptocurrencies and smart contracts trifecta not as a solution for the tokenization of the vote. We see them as the foundations of an opportunity to deliver a value-creating, fair governance platform that create a new economy, capable of supporting a new currency.