Why Is Voting Important In Blockchain? Consensus Mechanisms and More
Main Takeaways
In both the traditional finance and blockchain worlds, voting plays a part in capturing market sentiment.
We can improve the quality of information gathered from voting with verified, trusted identities.
Your vote and market sentiment will be presented on the Bitcoin price prediction and Ethereum price prediction pages.
Voting is an integral part of the blockchain ecosystem, from understanding market sentiment to securing networks. Learn more about the different ways we can all use voting to our advantage while traversing the crypto world.
You are probably familiar with traditional voting systems, whether it's used during elections or simply to come to a consensus about which restaurant to go to with your friends. To vote in the blockchain ecosystem is just as essential and crucial. While it's simple to understand the primary reason why people vote and how voting affects various aspects of decision-making, the role of voting in the blockchain ecosystem and the cryptocurrency market may not be as easily apparent.
To help you better understand the importance of voting in securing networks and understanding market sentiment, we'll run through various use cases.
Use Case in Blockchain
When it comes to voting in the blockchain, there are several successful models in use over different networks. The right to vote is normally based on token ownership, and the responsibility to vote altruistically is premised on the understanding that the token may potentially lose value when poor decisions are made. Cardano, Solana, and Tezos are all examples of this democratic process in access when achieving network consensus. Ethereum has also moved to a Proof of Stake model.
Byzantine General Problem
One of the strengths of creating robust voting mechanisms for crypto consensus is solving the Byzantine General problem. In a nutshell, the problem begs the question of how it is possible to arrive at a beneficial conclusion for a network when all its participants may have differing or even harmful malicious goals. With intelligently designed voting in place, it may be possible to create robust and trustworthy systems that have a significantly reduced risk of failure in the face of bad actors.
User Voting as a Possible Means of Ascertaining Cryptocurrency Market Sentiment
For traders and investors, seeing the results of community votes may also impact market sentiment. Fear and greed indexes and other sentiment-based market indicators could potentially reflect traders’ feelings toward projects, coins, and the market as a whole. This may be reflected in metrics that are as basic as user price predictions as to whether a token’s price will rise or fall.
In this regard, Binance has implemented a Consensus Rating mechanism that presents users’ opinions on possible price changes*. By asking the community to vote on whether they think the price is likely to rise or fall, the results provide an indicator of whether the community may be bullish or bearish toward a particular asset. Check out the Bitcoin Price Prediction and Ethereum Price Prediction Pages.
*Disclaimer: All such content is based on information or feedback provided by verified Binance users and/or other third-party sources. It is presented on an “as is” basis, without representation or warranty of any kind. Not financial advice. Digital asset prices are also subject to high market risk and price volatility. Do your own research and seek independent advice. See Risk Warnings, Binance Terms of Use, and the Coin Prediction Feature Terms of Use for full disclaimers and applicable terms and conditions.
Present-day Traditional Finance Parallels
Crypto, of course, isn’t the only place where voting mechanisms may potentially provide some useful reference points. Traditional finance has always been a home for analysts who see value and importance in the power of the vote.
Broker consensus
One of the most common places you’ll see voting implemented in traditional finance is in consensus recommendations. These compile the ratings and thoughts from a range of analysts and brokers on a specific stock or asset. The recommendations are then expressed as a median of the given ratings. As the price can be influenced by overall market sentiment, it once again proves useful as a tool for traditional finance traders.
Social IQ
Similar to broker consensus, social IQ uses trader-based voting and social media sentiment to create a usable indicator. Social media has become a huge source of information for many traders looking to gauge the market’s feelings.
For example, Reddit’s WallStreetBets proved to be a huge determiner in the performance of stocks in AMC Theatres, GameStop, and other stocks. By polling social media community members and asking them to vote, we have yet another instance of a useful tool for traders.
Sentiment tracking
Sentiment analysis is a catch-all term for the methods described in the two previous examples. Rather than relying on the two specific groups mentioned, sentiment analysis can track a broad range of cohorts and sources of information. Again, one common method for analyzing consensus is the use of simple voting mechanisms.
How Do We Make the Result of Voting More Accurate?
When it comes to sentiment-based indicators, it’s more difficult to collect trustworthy data compared to a system where tokens or value are on the line. However, there are some methods to improve the quality of the collected data. These include:
ID/Proof of Verification: By going through a verification process, you better understand your contributors and combat spam voters joining your poll. You can also make sure you have a representative pool of voters that accurately make up market participants.
Soulbound Tokens: As a relatively new concept, pollers have begun experimenting with soulbound tokens to improve data trustworthiness.
Sound Statistical Analysis: There’s more to analyzing data than just tallying up votes. With statistical analysis methods, you can control aspects of the data and determine confidence intervals for the results collected. This helps to improve data usability and trustworthiness.
Concluding Statement
It’s important to keep in mind, however, that user voting merely provides a rough indication of what user sentiment may be. The quality of such results is also dependent on various factors, such as (but not limited to) the level of participation and the intention of voters in each respective project. As such, historic user votes may (or may not) eventually reflect the actual market performance. There may also be other reasons for this deviation, such as rapidly changing market sentiment and conditions which are not reflected in historic user votes. That being said, user votes may still be a useful data point in your analysis and decision-making process.