SmartCash Governance and the Subject of Decentralization

I've tried to figure out the details about how the governance works in the SmartCash ecosystem. The result will be shown, but the main reason for this text is to contribute some clarity to the polarized opinions regarding decentralization in SmartCash community. After not finding enough information about the governance mechanism on the main website and in the white-paper, I have decided to read through and synthesize more from the discussion channels of the community. Despite not being interested in radiating anger, FUD, and even personal accusations I cut through a lot of it, finding a somewhat polarized community around many possible and impossible aspects of decentralization in SmartCash. Finally I synthesized somewhat consistent, albeit incomplete description of how the original decision-making process seems to works in SmartCash. Then, with it, a clear picture unfold showing how absurd and wasteful are all the arguments about "decentralization" in SmartCash. It is safe to say that all mentions of decentralization can be zapped without any harm, because they are irrelevant for the SmartCash ecosystem today. But let's get to this in gradual steps. 

The original paper states the focus on "The Business Orientated and Easy To Use Cryptocurrency". Although "Orientated" is probably a typo (meaning: situated in or belonging to the east; oriental) it arguably focuses on business-oriented user friendly payment system. The white-paper has, quite meaningfully, little focus on "decentralization". On the 25 pages the word appears only three times in three different contexts, and two of the three occurrences can be easily considered accidental:

1. "SmartCash is a peer-to-peer system that uses a decentralized ledger"
   [TRUE/CORRECT]
2. SmartReward provides "... more decentralized creation of block rewards", e.g. compared to mining only.
   [TRUE/CORRECT] (albeit in sense of dispersion or redistribution)
3. SmartHive is based on idea of independent teams, treasury and voting by holders "... to create and maintain a decentralized governance"
   [UNCLEAR/TRUE/FALSE/(IN)CORRECT]

In the 3rd case the use of word DELEGATED instead of DECENTRALIZED would be probably more appropriate. Similarly, in the 2nd case using DISTRIBUTED instead of DECENTRALIZED could be more accurate. Either way the point is that this is an extremely marginal discussion to have. Important here is that the seminal document describing the system is NOT focused on "decentralization" at all. It is about terms mentioned in the section titles used repeatedly with a consistent context like; merchant (15x), payment (16x), wallet (45x) or card (16x).

Nevertheless, part of the community seems to be very keen on promoting SmartCash as "decentralized", in general, including governance. Where that came from? It is very hard to guess - maybe blind copy-paste from the 3rd usage from the white-paper listed above. Perhaps for outreach and marketing activity it might better resonate with broader spectrum of audience and attract higher number of people initially. However, significant amount of people caught on the SmartCash as primarily "decentralized" argument get false expectations, which is sensitive and potentially dangerous for the long run.

SmartCash Governance 

SmartCash has an original governance method called in the white-paper as SmartHive Governance Portal.
The details about it were difficult to synthesize since sufficiently complete documentation allowing its overall understanding is not publicly available.
A probable reason for the difficulty is that the decision-making is delegated in a hierarchical manner with some levels of the hierarchy deemed irrelevant to the public.
The top of the hierarchy are people with access to Treasury - which is probably one address or more addresses accumulating at least 70% of all SMART that entered circulation.
This accumulation mechanism of the Treasury is hardcoded in the protocol of the SmartCash network - it is an on-chain feature.
People with access to Treasury are probably the creators of SmartCash system, but this is a guess.
These people delegate the Treasury access to Coordinators (Hive Team Coordinators).
This access delegation is either by sending funds to a specific address, by using a multi-signature address, or by some combination of these options - one might guess.
All activities of SmartHive Governance Portal system, including its administrative overhead, are funded from Treasury.
Coordinators are responsible for selection and oversight of Project fundings, as well as for transparent reporting of used Treasury funds at https://smartcash.cc/smartcash-monthly-report
Coordinators typically have a Team (Hive Team) which they can further task or delegate with responsibilities.
Nicknames of people in each Team are publicly listed at https://smartcash.cc/hive-teams/
The mechanism or procedure through which Coordinator is selected and delegated is publicly unknown/irrelevant.
The same holds for delegation of other Team members.
Coordinators are responsible for evaluation of all project proposals submitted through a single web portal:
https://vote.smartcash.cc/Home/GettingStarted
Submission of a proposal is associated with non-refundable 100 SMART fee.
The evaluation of each proposal is done by Team members according to a list of written requirements:
https://vote.smartcash.cc/TermsAndConditions
The described requirements are not exhaustive and arbitrary additional rules may be applied during the evaluation.
For instance proposals implying code/protocol changes of SmartCash system will be rejected.
Also, Team members are prohibited from submission of proposals in order to mitigate conflicts of interest.
How this is actually verified in practice is unclear.
Coordinators are responsible for publishing accepted proposals on the single web portal, which also initiates a voting period for the project at https://vote.smartcash.cc
The technicalities of how a proposal is published for the voting is publicly unknown/irrelevant.
Proposals are open to votes for 14 days, with one day extension if the vote majority changes from YES to NO or vice versa during the last 24 hours of that period.
Each vote can be one of YES/NO/ABSTAIN values and its voting power is proportional to the SMART balance of an address that signed the vote.
Should the vote remain valid no coin can be send from the address till the end of the voting period.
The voting must be performed through central web portal or its web API at https://vote.smartcash.cc
The counting of the votes is performed automatically by verifying every voting address signature and extracting its balance from the blockchain.
Execution of this vote counting algorithm is performed centrally in the direct connection to the voting portal, hence counting votes is NOT an on-chain feature.
The details regarding the control over execution of the counting of the votes, as well as its source code, are publicly unknown/irrelevant.
At the end of the voting period every proposal with majority of YES votes becomes a Project, and the corresponding Coordinator is responsible for their funding on delivered-milestone-basis.
Coordinators are responsible for oversight of the Project's performance and can disqualify Project from funding if they consider it underperforming relatively to the accepted proposal.
It is unclear whether or how Coordinators and their Hive Teams are tasked with other responsibilities.

Other means of governance with significant influence on evolution of SmartCash is the Core development.
Core development activities are NOT channeled through the proposal-voting-project process, but it is unclear whether it is entirely excluded from the SmartHive Governance Portal.
Thus the funding of the Core development is vague - it might come from Treasury, from the founders themselves, or from elsewhere.
The core SmartCash software that implements the peer-to-peer system with a decentralized ledger is open-source (based on Bitcoin and Dash), under MIT license, available on GitHub.
Its development is inclusive in a sense that everybody is welcome to submit on GitHub pull requests with new code, and then hope it will be accepted to the main code base by the core developers.
The core development activity, as mentioned already, is NOT incentivized by (is excluded from) SmartHive Governance Portal.
The scope of the core development is also vague, because the key products providing the SmartCard solution are tightly coupled with the Core code-base.
Nevertheless these products are separated from the Core code-base, and their development and applications are much more closed.
Namely, the main flagship products are:
Business registry for merchants [ https://business.smartcash.cc ]
Point-of-sale app SmartPay allowing merchants for payment option via user's SmartCard [ https://play.google.com/store/apps/details?id=cc.smartcash.pos ]
Users' web-wallet with user-name registry, and integrated SmartCard creation and voting capacity [ https://wallet.smartcash.cc/login ]
The SmartCard system critically depends on the core decentralized ledger that provides the basic monetary system of SmartCash, and therefore it is meaningful to consider SmartCard as part of Core development.
It should be clear, however, that functioning of SmartCard also critically depends on centralized, closed registries of merchants and users that are controlled by Core development.

Other means of governance in SmartCash are 1) holding of coins 2) operating smart nodes, and 3) mining.
However their influence on development of SmartCash ecosystem especially in terms of decission-making power are marginal compared to the previous two means.
They are not described here in further detail also because having similarities to mechanisms known from other cryptocurrencies.

Decentralization

decentralize | dēˈsentrəˌlīz |
verb [with object] (often as adjective decentralized)
transfer (authority) from central to local government: Canada has one of the most decentralized governments in the world | [no object] : European countries were trying to decentralize.
move departments of (a large organization) away from a single administrative center to other locations, usually granting them some degree of autonomy.

decentralized (adjective): withdrawn from a center or place of concentration; especially having power or function dispersed from a central to local authorities.

decentralization (noun): the spread of power away from the center to local branches or governments

centralize | ˈsentrəˌlīz |
verb [with object] (often as adjective centralized)
concentrate (control of an activity or organization) under a single authority: a vast superstructure of centralized control.
bring (activities) together in one place: the ultimate goal is to centralize boxing under one umbrella.

The term decentralization is familiar for centuries from contexts of political economy. It had clearly been a recognized concept long before it was ever applied to any software. In political economy it is given that any type of governance concentrates / centralizes power, and the challenging subject is the process of decentralization of that power. It is important to stress that in this context it is all about the process. The adjective decentralized is mere reference to some level or degree of decentralization rather than to a strictly total decentralization (loss) of power, which in the context of political economy means an undesirable state of anarchy and chaos, and therefore is not even considered as a goal. The dictionary example above describes the fact that Canada's government undertook relatively significant decentralization process. Therefore it can be loosely referred to as decentralized, while, at the same time, it still keeps the original root of centralization. Hence it is arguably decentralized and centralized at the same time, which is an obvious paradox. Nevertheless interest to question presence of centralization seems odd since political or economic power are irreplaceable in this context. People executing (following) agreed/written rules of certain governance structure, and the people having power to change these rules are the same, or are at least constituting the same elite group. This leads to possible corruption and conflicts of interest - two cases of evidence typical to every kind of centralized power structure.

With software it is machines, not people, executing rules that are expressed in a form of absolutely logical, deterministic code. In the last twenty years software engineers have been applying the term decentralized increasingly extensively when dealing with integration of services across organizational boundaries. Information technologies (IT) were designed intentionally so that IT services they provide are inherently difficult to be owned and even controlled as a whole. For example TCP/IP (the Internet), E-mail, WWW, and Bitcoin were invented providing respectively concrete decentralized IT services for a packet communication network, a post service, a hypertext space, and a ledger/monetary system. In this context, decentralized is all about the nature of the design rather then about the decentralization process familiar in the political context. The process of bringing decentralized IT services live occurs on different basis - namely on permission-less connection of additional instances of the same software package (nodes/agents). Rate of this permission-less adoption forms a totally decentralized IT service network with the corresponding rate of robustness of the service. Note that the total elimination of centralization is given by the design beforehand - it does not change during the process of adoption. The size of the network might change, but not the rate of decentralization/centralization of the service. In the software context a design (architecture) is arguably either totally decentralized or not, where not-decentralized means its functionality allows for some level of control / centralization of the overall IT service and is deemed as centralized.

Software packages providing truly decentralized IT services are extremely difficult to change and to evolve, once adopted across organizational boundaries. How to decide about further evolution and development of TCP/IP, WWW or Bitcoin? How to actually implement and deploy changes? That leads to need for governance that intersects both previously introduced contexts of government decentralization and decentralized software. One solution is that some familiar form of governance from the context of political economy is associated with a given decentralized IT service. For example W3C is a such governance body for the WWW. SmartCash, Nano and many others also have their governance method based on elite groups of people. The second, conceptually distinct, solution is applying the same software context used for the design of the decentralized IT services also for the governance. Meaning the governance method is entirely implemented as software via rules encoded as a transparent code controlled exclusively by shareholders without influence from any elite group of people. Attempts of this approach are for example cryptocurrency projects Dash, Decred or Tezos. 

Addressing "decentralization", especially in the context of cryptocurrency projects, is often challenging from linguistic and semantic point-of-view, because it must be obvious to the audience whether the "decentralization" is argued in the context of political economy or software. The most challenging cases are when decentralized governance in the sense of political economy is applied to an IT service decentralized in the sense of software architecture. Then it is practically impossible to reduce focus to only one context and the term "decentralized" becomes overloaded and totally confusing for the audience (and perhaps also internally within the project). This is the case of SmartCash. "Decentralized" in general and "decentralized governance" in particular is a snake oil for significant part of SmartCash community, and it did its harm already. 

Once the reduction of contexts is impossible, the least harmful is to change the terminology of decentralized governance from the context of political economy. Decentralized governance in political economy is a more loose, an easier to substitute term than relatively strictly defined decentralized "service" from the context of software engineering. In fact substitute terms such as; distributed, delegated, dispersed,  federated and others, can be, if appropriate, easily more accurate and descriptive. Totally decentralized, as assumed in the context of software design, is NOT even a goal in the context of political economy, where human capitalists and leaders are assumed.

Conclusions

SmartCash has a unique governance model capable to incentivize third party businesses, teams or individuals to contribute exclusively to the SmartCash ecosystem. The potential of SmartCash to incentivize is enormous and is funded with at least 70% of SMART entering circulation. The governance power is structured hierarchically with creators of the SmartCash technology at the top of the hierarchy. The governance power, however, is delegated from the top of the hierarchy to a growing number of independent Coordinators and their governance teams (Hive Teams). This should help to expose incentives in parallel to multiple, focused and important areas of the SmartCash ecosystem. It would be interesting to better analyze whether the company-like governance is in some sense a federation of Hive Teams.

The selling points of SmartCash are: practically useful payment system based on decentralized ledger (cryptocurrency), easy on-boarding for merchants and users, user friendliness, capacity to incentivize community and third party businesses, community outreach where people need it the most, company-like business focus including branding and marketing, SmartCard product. The selling point of SmartCash is NOT a particularly "decentralized governance". Despite "decentralized governance" is NOT a wrong term per se, the term "decentralized" should be avoided when possible and used very carefully. It might be highly misleading to market a technology based on a decentralized ledger having a decentralized governance, when the context, definition, and therefore meaning of the first occurrence of decentralized is totally different from the second. SmartCash is NOT trying, at least NOT by the virtue of what SmartCash actually is today, to solve somewhat esoteric challenge of decentralized governance in the sense of pure software design, e.g "decentralized autonomous organization". Those arguing endlessly that SmartCash should have had or does NOT have decentralized governance now - today, are right. But, at the same time, they are also either off context, or were originally misled by information using the same term/word "decentralized" in a different context. Those insisting on promoting or otherwise spreading information about SmartCash as having particularly decentralized governance, are also right. But, at the same time, it is a misleading marketing as they use, quite unprofessionally, the contradicting duality of term/word "decentralized", which may harm rather than help the project. The original mechanism called SmartHive Governance Portal adopts traditional governance model from political economy and therefore has the root of the original centralization - that is a fact and it is nothing of which to be ashamed. To put it in a perspective, here is a short list ranging various combinations of three properties [governance type - monetary platform - holder's status] as found in selected cryptocurrency projects:

Ripple: company governance - potentially centralized monetary system - holders are mere users.
most ICOs: company governance - decentralized monetary platform - holders are mere users.
Bitcoin: no effective governance - decentralized monetary platform - holders are investors.
Nano: company governance - decentralized monetary platform - holders are investors.
SmartCash: company, delegated, incentivized governance - decentralized monetary platform - holders are investors.
DASH: decentralized autonomous organization plus core development - decentralized monetary platform - holders are investors.
Tezos: decentralized autonomous organization - decentralized monetary platform - holders are investors.

There are many cryptocurrency projects with a company-like governance - it is nothing bad, dangerous or harmful for SmartCash. Much more dangerous, once the confusion regarding the nature of delegated governance unleashed, is trying to hide the company-like foundation of the governance. SmartCash governance structure requires leadership, and it succeeds, stands and dies with it. In addition to the leadership the distribution and delegation of power in SmartHive Governance and the provided incentives are also positive, and may significantly influence evolution and development of SmartCash.

Suggestions

Focus on the key selling points of SmartCash and NOT on "decentralized governance". For example Nano has negligible tensions about centralization of governance in their community since the fact has been sufficiently clearly stated for everyone on their webpage. SmartCash leaders should do something to achieve the same - the sooner the better. Due to the nature of the governance with possible delegation of power over to individuals from the community, it is practically a requirement to provide a sufficiently clear description of the governance processes - at least at the level of detail attempted in the text above, but with verified information. "Decentralization" buzzwords are indeed cool, but do NOT use it at expense of suspicion, mystery and/or chaos, which it causes now. Leaders should reformulate introduction of the SmartHive on the main webpage, because it immediately boosts the curiosity of every newcomer about the governance. Use distributed or delegated governance, or simply just governance with these properties, instead of "decentralized governance". Do NOT use "decentralized governance" on posters and merchandise. On the main webpage there are multiple terms containing "decentralized" to be changed, namely:

• decentralized governance system
• decentralized organizational model 
• decentralized governance structure
• incentivize decentralized community

This text is written with hope to clarify, consolidate, and therefore strengthen SmartCash community on the subject of decentralization.

Viva SmartCash!

____________________________________________________________

References

Ehrsam, Fred. “Blockchain Governance: Programming Our Future.” Fred Ehrsam(blog), November 27, 2017. https://medium.com/@FEhrsam/blockchain-governance-programming-our-future-c3bfe30f2d74.

G. Shabbir Cheema, and Dennis A. Rondinelli. Decentralizing Governance: Emerging Concepts and Practices. Washington, DC: Brookings Institution Press, 2007.

Khare, Rohit. “Decentralized Software Architecture:” Fort Belvoir, VA: Defense Technical Information Center, December 1, 2002. https://doi.org/10.21236/ADA441133.

Excerpts synthesized from SmartCash discussion channels:

SmartCash has a very unclear community structure. Voting and everything is controlled by the 3 founders who pay themselves 1 million SMART per month.
[ from comment by: https://www.youtube.com/user/eyeflosscandy ]

SmartCash voting system's code wasn’t forked from Dash. Everyone can vote and the voting impact/strengths is given by the amount of SMART you own. By reasonable definitions, SmartCash is decentralized.
[ from comment by: https://www.youtube.com/user/Zaph0id ]

SmartCash is centralized. 1SMART = one vote means that the majority of community is 3 people, the founders GG. Core team/juicyG has control of +65% of all coins meaning 100% control of the proposal system.
[ from comment by: https://www.youtube.com/user/vinniebreslin ]

I think in some heads there is obsession with evil of JuicyG, which is completely imaginary.
[ from comment by: https://www.youtube.com/user/Zaph0id ]

(+65% of all coins owned by founders) is not much different than any other crypto on who holds the most coins. Early adopters always end up with the most. Every coin has some type of centralized authority making decisions. BTC has core. SmartCash focuses on initiatives to bring adoption to those who NEED it most - the unbanked, the citizens of hyper-inflated countries, etc. Calling SmartCash a scam coin or claiming it will fail is assumption lacking decisive facts. As far as I know - I can tell SmartCash is far far away from being a scam coin and is situating itself for adoption better than many other cryptos.
[ from comment by: https://www.youtube.com/channel/UC2EPkqGj6X2eZrr2TiSI-Vg ]

SmartRewards were originally paid by an individual using 2nd layer code.
[ from comment by: https://www.youtube.com/user/vinniebreslin ]

SmartRewards before the v1.2 update (March 2018) were distributed by manually building the list of recipients and send from the address that collected them over the month. Since 1.2 SmartRewards are part of the protocol, and no human interaction is involved.
[ from comment by: https://www.youtube.com/user/Zaph0id ]

Master-nodes and 3 (6) hive coordinators with the final say regarding funding community proposals makes the argument that SmartCash is decentralized very weak. The three founders have the administrative power to give themselves undisclosed amounts of SMART between each other, having the final say on any changes made, and based on their opinions decide which "community proposals" will go to voting, plus single handedly being able to decide the outcome of the voting. The need, value and objectivity of "community" votes in such circumstances is extremely dubious. The result of voting is mere opinion for the founders' decision-making. 70% of block reward are said to be saved up for the future and to be used sparingly. How will these savings continue to accumulate? Reduce the authority and make the "community" governance system into a community governance system. Or, just make it into a bounty system and scrap the governance. Look into transparency.
[ from comment by: https://www.youtube.com/channel/UCq0SKlmPf2DSpNA-R_lvoOQ ]

We do not use/understand the term decentralization in the same way. SmartCash is decentralized by the common usage of the term. Prove it is not.
[ from comment by: https://www.youtube.com/user/Zaph0id ]

I think wiki makes up a decent summary of decentralization: "Decentralization is the process by which the activities of an organization, particularly those regarding planning and decision-making, are distributed or delegated away from a central, authoritative location or group." For me that authoritative group are the original three coordinators. After all, this will be personal points of view on these things. There is inequitable distribution of SMART since the beginning. Founders are snowballing their balance with staking/masternodes and initial 500k * (400%) 1st round SmartRewards and undisclosed paychecks. One of them was blamed as "7 million hive budget change" that accumulated 14m SmartRewards over the year "unnoticed" (which was now sent back to budget). This is neither in the transparency reports nor information you find on the website. The wiki also states the following about decentralization: "Other challenges, and even dangers, include the possibility that corrupt local elites can capture regional or local power centers, while constituents lose representation; patronage politics will become rampant and civil servants feel compromised; further necessary decentralization can be stymied; incomplete information and hidden decision-making can occur up and down the hierarchies; centralized power centers can find reasons to frustrate decentralization and bring power back to themselves."
[ from comment by: https://www.youtube.com/channel/UCq0SKlmPf2DSpNA-R_lvoOQ ]

Clarifying what is the "Community Fund" (or treasury) would truly help moving forward. The 70% block reward is so much that it confuses people by all this SMART floating around the Community Fund. Is there a Transparency Report available to Smartcash holders?
[ from comment by: https://www.youtube.com/user/n8cremer ]

The accounting guys got behind on such reporting process, but are working hard to catch up now. The first several months are available on the forum and are finishing proofing up through August now. We've put them up here for ease of access: https://smartcash.cc/smartcash-monthly-report/
[ from comment by: https://www.youtube.com/user/Zaph0id ]

There are apparently six hive teams now but these monthly reports only list three. It want to see what percentage of the treasury revenue goes to each team.
[ from comment by: https://www.youtube.com/user/brennanhm ]

The most recent report was just before the 6 were launched. The next report will have the 6. Each hive team gets 4% of the block rewards (used to be 8% when there were only 3).
[ from comment by: https://www.youtube.com/user/Zaph0id ]

I am OK with 3 founders owning +65% of the outstanding supply
[ from comment by: https://www.youtube.com/channel/UCmE2qAnI-hEYXuRJIVCY3fQ ]

All approved proposals are still managed by “fund manager”.  Are there any plans to get rid of the fund managers?

There is a manual process to weed out proposals that break the terms and conditions before they are put up to a vote. Voting is decentralized and is totally decided by users voting.
[ from comment by: https://forum.smartcash.cc/u/Solarminer ]

Changing the fundamental things in the code (SmartCash protocol) like the reward split is unlikely to happen. Plus, proposal is not the correct format to request such a change - a forum post or discord chat is the best way.
[ from comment by: https://forum.smartcash.cc/u/Solarminer ]

The proposal system has a treasury for projects related to SmartCash, but not for projects implying code/protocol changes. Code updates can be submitted to GitHub by creating pull requests for consideration.  If they were improvements and the code was fine it would be eligible to be added into the main codebase.
[ from comment by: https://forum.smartcash.cc/u/mark-smartcash ]

SmartHive leaders oversight projects similar to how grant organizations have oversight over grantees projects. Projects considered by the SmartHive leaders as falling short off their proposal's promises can be disabled / deactivated by them. This style is NOT going to change, because oversight allows more effective growth and higher standards for proposals.
[ from comment by: https://forum.smartcash.cc/u/mark-smartcash ]