What is Governance Token (Altcoin)

Photo by Element5 Digital on Unsplash

Definition/Examples

• Governance token is a type of cryptocurrency that gave the investors the right to vote on a certain protocols or blockchain.
• If you live in a country that use democracy system you might be familiar with voting ballot paper. This is what governance token act like. The governance token is a voting ballot paper, the investor is the voter and the protocol or blockchain is the candidates.
• The only difference between governance token and voting ballot paper is you can trade governance token but voting ballot paper is only use simply to vote. You can try to sell your voting paper and the police will come after you.
• Some of the examples of governance token is Dash (DASH) and eCash (XEC).

Usage

• Governance token is use to give investor a right to vote on deciding something that will affect the protocol or blockchain.
• Some of the thing that the investor can vote is proposal that was made by a member or entity behind the protocol, how the fund from the governance token sells will be used and many more. Most of the thing that they can vote is really critical for the protocol future.
• The simplest voting process usually required you to have a governance token, Ethereum or other crypto as a gas or transactions fee and a browser that has a crypto wallet install inside it.
• Other usage of governance token is crypto staking and taking out loans.

Pros and Cons

Pros:-

• The voting system that was provided by governance token can make the protocol a lot more decentralized than other protocols. Through voting, the protocol became more community driven and that’s is the whole point of what decentralized should be. But the proposal that the community will be voting is mostly determined by the developer. Sooo...bear that in mind.
• Any voter that was involved in the voting process will be given a reward for they contribution in deciding a proposal. This made the protocol a lot more valuable towards the investor.
• The risk of deciding a hard decision is spread towards all of the voter. A non-governance token mostly have all of the decision made by only the developer and that decision can have a good or bad impact towards the protocol. With governance token, developer are able to ask people’s opinion and the risk of making bad decisions can be lowered via that action.

Cons:-

• The voting for a proposal can be easily manipulated. If a certain person hold a lot of governance token that is native to that protocols, they can cast a lot a vote for a certain proposal. That will affect the voting results in their favor and that proposal might not be the best thing for the protocol itself.
• It is hard to understand some of the governance token and voting process that were made in a certain protocols. In other words it is to complex for voter to understand. This will have an impact on the amount of vote because the voter rather choose to not vote than dealing with the complexity of the voting process.
• The stupid amount and technicality of the proposal itself is to complex for voter. Some proposal that was provided doesn’t really have any impact to regular user of that governance token and they might just follow a prominent member of that community on what proposal they should vote.

Other/Conclusion

• Let’s make a proposal on how to solve the governance token problem first. First of all is the manipulation. This one is easy, just set a limit of vote for every voter.
• The complexity issues can be solve by making it not too complex. If you want to vote, have a governance token, gas or transactions fee and a browser with a wallet. Just have that three and problems solve.
• For proposal complexity, please just provide a simple explanation about that proposal. For example, a proposal about increasing the the staking reward. So explain it like this, when you hold your crypto in a wallet for set amount of time, you will get rewards. In conclusion, I have nothing to say, another day another crypto knowledge I guess😂.

Feel free to read my other articles:-

1. What is Stablecoin
2. What is DeFi Token
3. What is Utility Token

Referral and Affiliates Link

-NordVPN

Offer great way for us to use the internet in a safer and better ways. Click here if you guys are interested in using NordVPN.

-Surfshark
Provide 3 different services involving protecting your privacy and data. They also provide services to protect your device from malware. Click Surfshark VPN, Incogni, or Surfshark Antivirus if your guys are interested in using their service.

-CoinLedger

The Number 1 Crypto Tax Platform for trader and investor. Click here if you guys are interested in CoinLedger service and use my Promocode CRYPTOTAX10.

(DISCLOSURE: THIS ARTICLE CONTAIN AFFILIATE LINKS AND REFFERAL LINKS THAT WILL DIRECT YOU TO A CERTAIN PRODUCT)