Editing Governance (section)

== Overview ==
Governance is the explicit process for how an organization is organized. Governance is the structure which guides and constrains individual and group behavior. Governance helps an organization become and remain coherent in pursuit of their goals.

The idea of governance is best understood through its etymological roots in the Greek word, ''kubernetes'', which means guidance, steering, control. Governance is necessary for the integrity of any organization, but it is always an overhead cost. As such, ideal governance is minimized under the constraint that it remains effective in guiding the group toward its goals. Analogously, piloting a ship is most efficient using the smallest possible adjustments that effectively steer the ship toward its destination.

Governance as control can be separated into the static concept of ownership and the dynamic concept of power.

Ownership (i.e., property or financial equity) in a DAO is determined by tokens. Tokens are digital objects that are algorithmically minted and transferred. Pseudonymous control of tokens in a DAO is accomplished using [[wikipedia:Public-key_cryptography|public key cryptography]]. Digital signatures allow someone with the secret, private key to prove ownership of a digital token without revealing their identity. This asymmetric encryption tool allows individual privacy while maintaining maximal transaction transparency in a decentralized network with no leader.

Power in a DAO is achieved with [[wikipedia:Smart_contract|smart contracts]]. A smart contract is a software-program that encodes business logic in a computer program. Such automated contracts self-execute at the speed of electricity. Therefore, much more complex business arrangements are now possible on scales previously unimagined both small and large. For example, every device in the Internet of Things can dynamically negotiate with every other micro-component on the globe, in unlimited multiparty arrangements that can scale up to the level of international corporate acquisitions.

Governance, from a higher perspective, means guidance of the group, not just individual tokens. Raising our attention from the business details of token ownership and smart contract operations (executive governance), the more abstract understanding of governance concerns the justification of those primitive business operations, the analysis of the foundations of group consensus (legislative governance). As both ownership and power dynamics will necessarily evolve in time, we also need to govern how the rules change, and moreover, how to change the rules for changing the rules. Token minting and ownership is 0<sup>th</sup>-order governance. The business achieved by smart-contract-enabled token transference is 1<sup>st</sup>-order governance. How we change smart contracts and backend logic for minting tokens is 2<sup>nd</sup>-order governance. How we change the way we change contracts is 3<sup>rd</sup>-order governance. 1<sup>st</sup> and 2<sup>nd</sup>-order governance is executive governance, while 2<sup>nd</sup> and 3<sup>rd</sup>-order governance is legislative governance.

There is one higher level order of governance that is necessary in any practical application of power. Every system is flawed. Flawed means that the intent of the system is not captured by the formal protocols that are specified. Every human attempt to fully understand anything has failed to some degree. Every actual instantiation of any practical system is even more flawed, in this sense. Mistakes will be made. Every system of governance in history has therefore found it necessary to build an institution for dealing with this reality. The process of stepping outside of the system must be built into the system. This is the judicial branch of government, which reviews the system itself. 4<sup>th</sup>-order governance is how we actively review executive actions (arbitration). 5<sup>th</sup>-order governance is how we retrospectively review executive and legislative actions (Forum revaluation).

This triad of executive, legislative, and judicial governance follows the information theory triad of information transmission, processing, and storage, respectively. The goal of DGF is to specify mechanisms for achieving all these types of governance in a decentralized context.