Cardano uses on-chain governance with a treasury to vote on and fund the blockchain’s developments. These fall under the umbrella of the Voltaire era of Cardano’s roadmap. Voltaire allows community members to make meaningful decisions around software updates, technical improvements and what projects should be funded.
Participants in the community can submit Cardano Improvement Proposals (CIPs) and Funding Proposals (FPs) to be voted on. CIPs are formally structured proposals touching the Cardano Ecosystem. They are publicly available for review and discussion. A CIP might outline a Cardano specific process, provide information or propose protocol level alterations.
FPs are formal requests or proposals to build something that is not yet covered by the Cardano protocol. Examples of FPs include developing new capabilities or integrations, paying for marketing or building an app to support the Cardano ecosystem. Token holders are entitled and incentivized to vote on these proposals.
Successful FPs are those which are voted on by ADA holders. No technical knowledge is required to participate in votes, only a temporary deposit of ADA. Winning proposals receive money from the Cardano treasury in line with the amount requested. Community oversight ensures that the funds are spent in line with the proposal, with clear KPIs and results.
Hard Fork Combinator
Protocol level updates are implemented through Cardano’s groundbreaking hard fork combinator. Unlike traditional hard forks, in which a blockchain splits from another and operates with different rules, Cardano’s hard fork combinator enables upgrades to the network by incorporating all previous chain rules into a new version of the blockchain which contains the updates.
An example of a protocol level upgrade using the hard fork combinator was the shift from Byron to Shelley, where Cardano transitioned from a static and federated model seen in Byron, to a dynamic and decentralized system as with Shelley.
This represented an entirely new set of ledger rules, which was achieved using the hard fork combinator, all while preserving the original Byron history of the chain. This is significant for Cardano’s governance, as all future protocol level upgrades can take place while preserving original versions of the blockchain.