On-chain governance is a new way to manage cryptocurrencies that relies on the blockchain. It elevates the decision-making process to a more decentralized, transparent and often automated system, as opposed to traditional, centralized governance systems. If a cryptocurrency protocol or blockchain could be seen as a country or state, on-chain governance would be the system of laws and rules each individual follows.

In on-chain governance, the process of changing a protocol starts with proposals that can be put forward by anyone. These proposals can include structural changes to the blockchain, such as adding new features, or changes to the economic structure such as setting different emission or inflation rules. All of these proposals are voted upon by the nodes and participants of the network, each giving their opinion by either voting “for” or “against” the change. The voting process can be designed to be verifiable, and transparent, so a participant can see how their voting decision affected the outcome.

In general, on-chain governance is designed to be decentralized, trustless and generally self-fulfilling. If a majority of the network participants agree to a certain change, then the blockchain protocol itself is changed to match the agreed-upon changes. This way, participants don’t need to trust that the change will be implemented, since it is baked into the protocol itself.

On-chain governance is seen by many as the future of blockchain governance. Traditional governance systems rely on centralized decision-making, they can be opaque and hard to understand, and they can be prone to corruption or mismanagement. In contrast, on-chain governance provides all participants with a stake in the network, and allows them to directly influence decisions related to the blockchain protocol. This can create more secure, transparent and efficient networks.

Furthermore, on-chain governance makes it easier to implement changes that better align with the stakeholders’ interests. In traditional systems, it can be hard to quickly adapt to changing users and adoption rates or trends. With on-chain governance, new rules can be quickly adopted and implemented that better reflect the current state of the network.

On-chain governance is still relatively new. While it is showing a lot of potential as a way to improve blockchain governance, there are still a lot of open questions about how it will be implemented and adopted, and how it will affect the long-term stability of the networks that implement it. Nonetheless, it seems to be an exciting new way of managing cryptocurrencies and protocols, and many are taking note.