NNS: On-Chain Governance on The Internet Computer

Blockchain systems are distributed ledger systems (DLT) with decentralization as a key tenet. These systems operate autonomously, eliminating the need for trust between participants through decentralized consensus and transparency. Through code blockchains enforce an environment where participants must strictly adhere to procedure.

The Internet Computer is notable among blockchains because it is the most powerful general-purpose blockchain to build Web3 dApps that scale. The IC is a “world computer” designed to enhance the Internet by providing a full stack for building online systems with superior performance and scalability.

The Internet Computer is based on a network of sub-blockchains (subnets) governed by an autonomous master blockchain. At the core of the Internet Computer Protocol’s governance is the Network Nervous System (NNS)--an autonomous software that controls and manages everything within the Internet Computer blockchain.

(On-chain) Blockchain Governance: What It Is — and Isn’t

Simply put, blockchain governance can be summed up as the collective processes required to maintain the neutrality of power and decision-making on a blockchain network.

There are two modes of blockchain governance: on-chain and off-chain governance. We’ll focus on the former. On-chain governance is widely employed for managing (i.e., proposing and implementing changes to) cryptocurrency blockchains.

In an on-chain governance model, rules for enforcing changes are implemented into the blockchain protocol. Developers typically propose these changes through code upgrades. Each stakeholder (usually nodes) on the network votes on whether to accept or reject the proposed change.

Blockchain governance enables a distributed network to maintain decentralization while promoting node diversity. However, it’s perhaps noteworthy that blockchain governance differs from blockchain consensus.

“How?” You may be asking.

Blockchain governance is the entirety of the actual processes involved in arriving at a decision on a blockchain network. On the other hand, blockchain consensus is one of the governance processes involving participating nodes making all decisions together through a set of predefined rules.

In plain English, governance is collaborative decision-making, while consensus is a collaborative decision-making process. One is a subset of the other.

Let’s now take a deep dive into the Network Nervous System.

What Is the Network Nervous System?

Aptly named, the Network Nervous System (NNS) is the ‘brain’ of the Internet Computer Protocol. The NNS handles various core processes like operations, economics, network structure, etc.

The Network Nervous System is an open algorithmic governance system built directly into the IC protocol. The NNS is one of the largest decentralized autonomous organizations (DAOs) currently in existence. The mode of governance employed by the Network Nervous System is on-chain community-based governance.

The NNS acts as a "master blockchain", with a public key to validate all transactions on the blockchain. Anyone can participate in the NNS and vote on governance decisions.

What Does the NNS Do?

Notably, the NNS can upgrade the Internet Computer protocol and software running on node machines, onboard new node providers, create new subnet blockchains to scale, and add node machines into the blockchain network.

The NNS securely combines the computing power of a diverse network of node machines to form the government of the Internet Computer blockchain. This distributed governance system allows the network to be autonomous and adaptive.

The NNS controls several parts of the Internet Computer blockchain, including:

which data center providers participate in the network;
the number, location, and ownership of the nodes accepted from a data center provider;
which nodes get assigned to subnet blockchains;
creating new subnets to balance network load;
whether upgrades to canisters or a new protocol version are allowed.

In addition, the NNS creates subnets by combining node machines from various independent data centers. These subnets are then used to host canisters, a special type of smart contract.

The NNS continuously creates subnets based on the requirements for hosting canister smart contracts and active connections to other subnets. This on-demand availability of subnets allows the Internet Computer to achieve infinite scalability and 'web-speed.'

Now let’s see how the Network Nervous System ties into on-chain governance on the Internet Computer.

Community Governance of Internet Computer using the NNS

Blockchain protocols, like any software, need to be updated regularly to stay ahead of the competition. The Internet Computer’s unique design makes it easily upgradeable with minimal downtime and without any forks. At the same time, each upgrade still requires community consensus.

Barely two years after the “Genesis” launch in May 2021, the Internet Computer has upgraded several times, adding key features like Deterministic Time Slicing, Bitcoin Integration (finally!), Service Nervous System, HTTPS Outcalls, Threshold ECDSA, Increased Stable Memory, and more.

Since Genesis, the larger ICP community has been the force majeure of network governance. More specifically, ICP holders control about 60% of the voting power. The DFINITY Foundation and Internet Computer Association — both non-profits — hold a minority stake in the voting power (less than 40%).

Both organizations will continue to lose their collective voting power as more ICP is released into circulating supply and more holders stake their ICP tokens into neurons. The end goal is to enable the community to hold a substantial role in governing the Internet Computer network.

Through the NNS, each potential upgrade to the Internet Computer protocol is put to vote, on topics such as whether to add more subnets or onboard new nodes to expand the network. These proposals, once raised by the community, are then voted on by the governance body.

But we have a small problem: ICP utility tokens are liquid assets. This means they’re not stable enough for holders to commit to using them for governance purposes. Enter neurons, the ideal solution for sustainable governance; ICP tokens can be converted to neurons.

By now, you’re probably wondering what neurons are and their role in Internet Computer governance. Going by the analogy of the NNS being the brain of the Internet Computer, it’s not hard to infer what a neuron should be.

That said, let’s save you some actual neurons (pun intended) as we unravel the meaning of neurons on Internet Computer.

Sustainable ICP Governance using Neurons

A neuron represents some ICP tokens that cannot be exchanged for a set time (i.e., the lock-up period). Anyone can participate in the NNS by staking their ICP tokens into one or more neurons. Holders can then utilize neurons to submit proposals and decide whether to adopt or reject them.

ICP tokens locked up in reward-earning neurons can only be withdrawn after a fixed notice period. The dissolve delay, equal to the lock-up period, can be configured longer. However, once you create a neuron, you can only unlock the staked ICP token balance by dissolving the neuron.

The dissolve delay reduces as staking progresses, with a dissolve timer showing how long it takes until a neuron completely dissolves. When the timer runs out, the neuron owner — either the staked ICP token holder or an authorized custodian — can dissolve the neuron and unlock the staked ICP.

The dissolved neuron then stops existing, and the initial stake of ICP utility tokens is released to the appropriate token account. The dissolve delay must be more than six months for a neuron to be able to vote, up to a maximum of eight years.

The NNS implements “liquid democracy”: neurons can follow other neurons and delegate voting power to one another. They can also follow certain topics to vote automatically. Neurons that vote automatically by following other neurons will still receive their full share of the voting reward. You can create new neurons or merge existing ones based on certain conditions.

Once ICP holders lock up their tokens to create neurons, the neuron owner has the right to participate in network governance. They can use their voting power to vote on pending proposals towards continuously improving the Internet Computer.

The voting power of a neuron is calculated using three parameters:

The number of ICP tokens staked
The duration of the dissolve delay, up to a maximum of eight years
The neuron’s age, which is the time since the neuron was created or last stopped dissolving

So far, over 5,000 proposals have been submitted to the NNS and voted on by the community. Once a proposal is adopted by the voting majority, the NNS automatically executes it. Only community participants in governance can vote to adopt/reject requests to upgrade or modify the Internet Computer protocol.

ICP holders who have staked their tokens in neurons using the NNS front-end dApp can earn substantial voting rewards. The voting rewards received are in proportion to the number of ICP tokens locked up, the length of the lock-up period, and the relative number of votes cast.

(In a later article, I'll walk you through how to earn voting rewards for participating in the Network Nervous System.)

Side note: information on each proposal submitted to the NNS, including the total votes and proposal details, is publicly available for anyone to verify in the NNS front-end dApp.

Closing Thoughts

For novel blockchain systems like the Internet Computer, decentralized on-chain governance is the new sexy. For early blockchains like Bitcoin and Ethereum, the power tends to be concentrated among the core developers and miners. Remember the days of waiting for approval on off-chain decisions before changes could be made to a protocol? Yes, those days are long gone.

The Internet Computer is setting the trend for sustainable governance with its own liquid democracy model. For convenience, you can stay up-to-date by following neurons and specific topics you’re interested in.

Likewise, the freedom to choose what you vote for is ultimately yours. Indeed, it wouldn’t be a reach to say the Internet Computer is becoming primus exempli for individual and community empowerment.

Blockchains are designed to be (collectively) governed — and governed well. As governance issues so often come to the forefront in web3, maybe it’s time for the entire crypto space to take a leaf out of the Internet Computer playbook for inclusive, sustainable, and collective governance.

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