Abstract
Understanding the complexities of blockchain governance is urgent. The aim of this paper is to draw on other theories of governance to provide insight into the design of blockchain governance mechanisms. We define blockchain governance as the processes by which stakeholders (those who are affected by and can affect the network) exercise bargaining power over the network. Major considerations include the definition of stakeholders, how the consensus mechanism distributes endogenous bargaining power between those stakeholders, the interaction of exogenous governance mechanisms and institutional frameworks, and the needs for bootstrapping networks. We propose that on-chain governance models can only be partial because of the existence of implicit contracts that embed expectations of return among diverse stakeholders.
Highlights
Blockchains are decentralised digital network protocols whose governance is characterised by a complex interplay between stakeholders
We offer a new distinction between the distribution of bargaining power endogenous to the consensus mechanism and the exogenous governance structures that are built on top
In this paper we have drawn on the theory of corporate governance to better understand the complexities of blockchain governance
Summary
Blockchains are decentralised digital network protocols whose governance is characterised by a complex interplay between stakeholders. Stakeholders, and the groups they form, face distinct set of costs in past and future investments in the network—that is, they have made asset-specific investments that constrain future decision-making On public blockchains such as Bitcoin that allow for open entry and exit (holding and transacting coins, as well as observing the chain and validating new transactions), bargaining power is relevant when modifications to the underlying protocol or core software are proposed. We draw on a coherent body of theory around institutional economics—a body of thought structured around the governance of contractual relationships This body of thought, including transaction cost economics, brings together economics, law, and organisation theory to make the transaction as the basic unit of analysis and includes contributions by Ronald Coase (on why firms exit), James Buchanan (on club goods and constitutional rules), Oliver Williamson (on the economic institutions of capitalism), Oliver Hart (on incomplete contracting and make-or-buy decisions), and Elinor Ostrom (on commons) [17,18,19,20,21,22,23,24,25]. These elements provide, sometimes, contradictory pressures towards and against decentralisation
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