Blockchain Technology and Decentralized Governance: The Pitfalls of a Trustless Dream

Abstract

Blockchain technology was first elaborated as a part of the Bitcoin network, a decentralized payment system and virtual currency that can be traded on a peer-to-peer network, without relying on banks or other financial institutions. Deployed in 2009 by a pseudonymous entity called Satoshi Nakamoto, the idea underlying Bitcoin was that it is possible to delegate to a technological artefact the trust that we have thus far granted to existing social or political institutions. As such, the technology has been often referred to as “trustless technology” or as a “trust machine”, because it eliminates the need to rely on trusted intermediaries, as long as one can trust the underlying technology. When it comes to governance, the most significant innovation of blockchain technology is that it provides us with the ability to experiment with new organizational structures and distributed governance models, which are more transparent and less hierarchical than those we have become accustomed to. Indeed, the technology potentially allows for the creation of so-called decentralized blockchain-based organizations, enabling people to coordinate themselves in a peer-to-peer manner, according to a set of protocols and rules incorporated into self-executing smart contract code. Because it enables people to coordinate themselves in a peer-to-peer manner, early blockchain advocates claimed that blockchain technology would ultimately promote individual freedom and autonomy. Yet, in practice, there are many limitations to that dream. As the Internet has shown, a decentralized infrastructure does not necessarily lead to a decentralization of powers within that infrastructure. To the contrary, over the years, the Internet network has grown more and more centralized, with a concentration of power in the hands of a few large online operators. Despite its promises of decentralization, the blockchain space is no exception to that. Over the years, the governance of the most popular blockchain networks has become highly centralized, and only a few large corporations (such as the main blockchain exchanges and wallet providers) are responsible for making blockchain technology accessible to the wider public. If we can learn anything from the history of Internet governance, it is crucial that we start thinking today about how we can shape the governance of blockchain-based networks in ways that ultimately preserve the distribution of powers of these infrastructures.