How does a blockchain decide its future direction?

Blockchain networks and applications are not static; they evolve over time as technology and perspectives advance. Understanding how these projects evolve and the stakeholders involved is crucial in the industry. This process typically involves some form of decentralized governance to decide or influence the future direction, contrasting sharply with traditional centralized decision-making frameworks.

When a blockchain project decides its future direction, it usually considers a mix of approaches. These include aligning with the existing community, where core developers are key stakeholders, evaluating new consensus mechanisms, and making updates to the existing protocol. This collaborative and inclusive decision-making process helps ensure that the project's evolution aligns with the interests of its diverse stakeholders.

Bitcoin utilizes Bitcoin Improvement Proposals (BIPs) to evolve the blockchain. Similarly, Ethereum uses Ethereum Improvement Proposals (EIPs) and Ethereum Request for Comments (ERCs). Other projects also leverage decentralized autonomous organizations (DAOs) to make their future decisions. Let’s consider each of these individually to understand how each approach plays a crucial role in shaping the evolution of blockchain technologies.

What is a BIP?

Bitcoin requires regular improvements and upgrades in order to address bugs, update algorithms, and simplify code. A Bitcoin Improvement Proposal (BIP) is the technical documentation that outlines changes, ideas, and/or enhancements to the core Bitcoin Protocol. A BIP provides information to the community that describes a new feature for Bitcoin, its processes, and environment. Typically, a BIP focuses on one key change in particular. The author of the BIP is responsible for building consensus within the community and documenting any opinions on the proposal.

The first BIP, which is documented as BIP 0001, was submitted by a programmer named Amir Taaki in 2011.

How are BIPs Created?

A BIP is typically discussed on a forum, discussion board, or other medium prior to it being formally submitted. Regardless of source, the conversations prior to the formal submission of the BIP can help to refine concepts, prevent duplicate submissions, as well as prevent proposals that simply aren’t aligned with development standards.

The submission of a BIP should be done with the aim of being accepted, given the overall process takes time and effort to create and review. Discussions within the community prior to submission can help increase the chance of acceptance. 

Anyone within the community can submit a BIP. This is done by drafting the proposal in the correct BIP format, promoting the idea, and raising it for discussion in order to get relevant consensus. 

How do BIPs work?

Once a BIP has been submitted, and receives sufficient support, it is the responsibility of the author, known as the BIP champion, to progress it to the next stage. After submitting the BIP formally, and ensuring it includes the concise technical specifications and rationale for the proposed improvement or feature, the BIP champion can continue to promote the idea and build consensus.

All BIPs are submitted to an editor, who ultimately gives the go-ahead post submission. The editor provides a BIP number and it is then published to the Bitcoin Core GitHub repository of BIPs. At this point the BIP has been formally generated and can be reviewed by the community, and is open to receive feedback prior to advancing to any testing phases. 

A BIP must be accepted by the majority of miners, considering the implications of the changes that may impact the community if modifications are made to the existing code. In this case, a majority approval is 95% of the community. Specifically, this means that support from 95% of the last 14 days worth of miners with 10-minute blocks must be in agreement with the new proposal, approximately 2,016 miners.

The status of a BIP is closely tracked so the entire community can monitor what stage the BIP is in. It must be noted that if no progress is made on a BIP within three years of being formally proposed, anyone can reject the BIP. 

What are the three main types of BIP?

Overall, there are three main kinds of BIP.

• Standard BIPs: These identify standards that are used by Bitcoin software, such as a digital wallet or exchange, and have the objective of changing the protocol.
• Informational BIPs: These are informational, offering guidelines for the Bitcoin community but don’t propose a new feature or standard. As a result, there is no requirement for consensus in the community.
• Consensus BIPs: These are BIPs that propose a change to process. Similarly to Standard BIPs, they require consensus. Although the proposed changes are outside of the existing Bitcoin Protocol, they require an explicit activation on the Bitcoin network.

What are EIPs?

In the Ethereum ecosystem, EIPs serve a similar purpose to BIPs in Bitcoin, detailing standards for the Ethereum platform, including: core protocol specifications, client APIs, and contract standards. 

An EIP is a standard that specifies the potential a new feature or process can offer Ethereum. The EIP will contain the technical specifications for any proposed changes and are referred to as a ‘source of truth’ for the Ethereum community. Any individual within the Ethereum community is able to create an EIP, but given the technical requirements required for a well-written EIP, typically EIP authors are application or protocol developers. All EIPs are openly discussed and developed within the community.

For any EIP that is formally submitted, it is the responsibility of the author to ensure consensus is reached, and all counter arguments or disagreements are documented thoroughly.

Why submit an EIP?

The main objective of submitting an EIP is to define how a new feature or process can help elevate Ethereum. Formalizing the process ensures that any changes brought to the community are well documented and can be openly discussed.

Any upgrade that has taken place on the Ethereum network has been supported by a set of Ethereum Improvement Proposals (EIPs). These EIPs must be implemented by Ethereum clients on the network to ensure the upgrade is successfully integrated.

EIPs also serve as a form of governance for changes that occur within Ethereum. Although anyone can propose a change via an EIP, all stakeholders in the Ethereum community are able to debate whether or not it should be implemented as a standard or included as part of a network upgrade.  

What are ERCs?

A significant subset of EIPs is the ERCs, which focus on token standards within Ethereum. The most famous ERC, ERC-20, has established a standardized set of rules that all Ethereum tokens must follow, facilitating easier interoperability between different tokens.

Additional ERCs, like ERC-721 which defines non-fungible tokens (NFTs), have been instrumental in broadening the usability and functionality of Ethereum. The main criticism is the fact that too many developers are involved, proposing too many incremental and often contradictory innovations, and ultimately impairing the progress of Ethereum.

For most other crypto projects, Decentralized Autonomous Organizations (DAOs) represent a radical shift in organizing collective efforts. Essentially, DAOs are organizations that are fully automated and decentralized, and have their bylaws encoded in smart contracts on the blockchain. These bylaws are automatically enforceable without the need for traditional management structures. DAOs may assume responsibility over a number of protocol aspects, such as treasury, protocol fees, assets and more, and allowing token holders to vote on proposals concerning the project's future. This method helps to ensure that decisions are made democratically and transparently, reflecting the will of the community. DAOs are not yet legally recognized in the majority of jurisdictions. The lack of digital identity is hampering their adoption, as anonymous participants often abuse DAOs for their own gains.