Governing Blockchains and the Blockchain Government

And thus every man, by consenting with others to make one body politic under one government, puts himself under an obligation, to every one of that society, to submit to the determination of the majority, and to be concluded by it.

~ John Locke, Second Treatise of Government (1690)

Governance has never been so cool. In the past, only the stodgy professoriate debated the principles of good governance. While those who actually governed did so by brokering power in the back rooms of corporations and government offices, with little regard for rules and principles. But, the emergence of open source software and the Internet created a new kind of governance that, over several decades, coalesced and crystalized into “digital governance” guided by principles of “rough consensus” and “running code” and “benevolent dictators.” Sometimes, people would say that “code is law,” standing in for government and corporations. Nonetheless, governance remained in the hands of the wealthy, the powerful, and the elite.

Blockchain technologies emerged as a solution to outdated and outmoded governance, yet ironically, most blockchains cannot seem to get their own house in order.

Blockchain technologies emerged as a solution to outdated and outmoded governance, yet ironically, most blockchains cannot seem to get their own house in order. The rancorous debates, the screwups, and the outright criminality is legion. Even the best are troubled. How did the governance of leading blockchain platforms and companies—from Bitcoin’s scaling debate to Ethereum’s post-DAO fork to Tezos’ lawsuits—become so factious, obstinate, and broken?

In this blog post, I unpack what blockchain governance is, and more importantly, I establish some principles for how to do it well. Despite the popularity of talking about governance and blockchains, by academics and software developers alike, surprisingly little has actually been said. As a clarifying introduction, in this blog post I describe conceptions and misconceptions about what governance is. I offer a working definition of governance and I make an important distinction between governance of blockchains and governance by blockchains. I describe how blockchains can be used to help govern, equally relevant for small scale organizations and nation states. Future work will offer concrete principles for governing blockchains throughout their lifecycles.

Governance of blockchains or governance by blockchains?

It’s a simple point, but one that is usually ignored or misunderstood: you can either govern blockchains or govern by blockchains. Keeping this distinction in mind is vital since the mechanisms for governing blockchains are not necessarily the same as those used to govern blockchains.

Most blockchain researchers simply assume a shared definition of “governance.” Of the dozens of academic articles ostensibly about governance, only a few offer definitions or address the complexity and contentiousness of the term. These definitions can be helpful, but they lack needed specificity and context. For example, O’Dwyer (n.d.) invokes Foucault in arguing that “governance is the power to act upon the actions of others.” Morabito (2017) defines “blockchain governance” as “the provision of services in a potentially more efficient and decentralized way… [than] the state or government…” (41). Rooney, Aiken, and Rooney (2017) draw on auditing literature for their definition, suggesting that “governance is ‘the combination of processes and structures implemented… to inform, direct, manage, and monitor the activities of the organization toward the achievement of objectives’” (41). Hsieh, Vergne, and Wang (2018) drawn on organizational literature and corporate governance, defining governance as “the study of power and influence over decision making within the corporation,” which defines the “rights and responsibilities of… different stakeholders toward the firm” (48). It is encouraging to see these authors attempt definitions, but no one really gets at the heart of the matter.

The two best definitions of blockchain governance come from Don and Alex Tapscott (2014) and Vlad Zamfir (2018). The Tapscotts draw a parallel to Internet governance, which they characterize in terms of “stewardship.” Stewardship is further defined by the existence of seven “networks”—standards networks, knowledge networks, delivery networks, policy networks, advocacy networks, watchdog networks, and networked institutions. Successful blockchain governance must participate in all seven networks. Zamfir, on the other hand, defines blockchain governance in terms of “legitimacy.” According to Zamfir, if the rules and processes that govern blockchains are not accepted as legitimate they will be rejected by stakeholders, which eventually leads to crisis. This is especially important for open platforms like Ethereum, since above all, Ethereum must have the appearance of impartiality and fairness.

My own definition draws on these as well the considerable literature on governance in political science, but distinguishes between governance of blockchains and governance by blockchains:

  • Blockchains are governed by the wholistic application of legitimate management techniques to accomplish specified social, political, or business goals.
  • Blockchains govern by coordinating decisions and activities, establishing a shared record of facts, and (typically) incentivising and prohibiting behaviours through allocation and control of valuable tokens.

Naturally, not all blockchains are used for governance, but all blockchains must be governed (either well or poorly, implicitly or explicitly).

Taking blockchain governance seriously

The ways that blockchains are used for governance are varied and extensive (see DuPont 2018 for a complete analysis). In my own work, I helped design a “governance blockchain” that optimizes the intelligence of experts and engaged hobbyists to make investment decisions about a notoriously difficult topic—quantum technologies. The result is a design for a governance “decentralized autonomous organization,” or DAO, that manages people’s behaviours and their collective knowledge.

In this use case, legitimacy and stewardship are of secondary concern, so the design uses blockchain technologies to govern people, much like how the “original” and ill-fated DAO from 2016 (see DuPont 2018b) was designed to govern an entire ecosystem of startups and decentralized apps. The major contribution of The DAO, other than its posthumous notoriety, was to implement a mechanism for broad, democratic participation while avoiding takeover and control by a powerful elite or majority owner. Unfortunately, it was precisely this mechanism that was exploited by an unknown attacker. Once the attack was discovered, in order to save millions of dollars’ worth of tokens from being exfiltrated, the DAO community (and by extension, the Ethereum community, upon which The DAO was built) had to figure out how to govern their blockchain.

Famously, The DAO attack of 2016 was a wakeup call for blockchain governance. Prior to the attack, Ethereum was largely governed by a loose stewardship model, favouring “rough consensus” and “running code” in the model of decades of open source software development. However, unlike typical open source software development, the Ethereum platform needed to make changes quickly and decisively. Unfortunately, there were few guidelines in place for how to legitimately govern the platform, and practically nobody had experience dealing with these kinds of governance issues. In the end, largely due to the urging of Ethereum’s charismatic leader, Vitalik Buterin, a “sensible” solution was found (although some disagreed with the solution and broke away with a contentious fork). Since The DAO attack, figuring out how to govern a blockchain has become a central concern for the Ethereum community. Arguably, The DAO attack pressed the issue and Ethereum is better off for it today.

So, how does one successfully govern a blockchain? Oftentimes, concepts and ideas for blockchain governance mirror forms of political governance. For instance, the Polkadot platform invokes councils and referendums, much like how a small political community might be run. In the Polkadot implementation, like many blockchain governance mechanisms, proposed change is voted on by stakeholders. Voting schemes implemented on blockchain technologies range widely in their complexity and use: some require only a simple majority, others are devilishly complex algorithms that weigh and delegate votes or require multiple runoffs. Polkadot uses a “stake-weighted referendum” to make changes to the protocol.

I argue that successfully governing blockchains requires:

  • adequate security and technical performance,
  • legal and regulatory compliance, while acting in accordance with social norms,
  • effective leadership with a shared sense of organizational mission and goals,
  • operational rules and bylaws that are clear, explicit, and broadly accepted by internal and external stakeholders,
  • and, explicit guidelines for change and risk management throughout the entire system lifecycle.

My work designing a governance DAO was an example of a concerted effort to get governance “right.” Not only does the design squeeze everything it can out of the blockchain’s governance capabilities (governance by blockchain), the design is serious about ensuring that the platform is well governed too. The initial design isn’t perfect and there’s many operational challenges that would necessarily need to be sorted out, but I believe governance is such a difficult and important topic that it ought to be elevated to the C-suite—Chief Governance Officers ought to be running all blockchain organizations today.

So, if I had just one piece of practical advice for blockchain platforms and cryptocurrency startups, it would be to deal with governance issues before they arise—starting with hiring into governance positions and establishing clear rules and shared values.

~ Quinn DuPont

Works cited

DuPont, Q. (2018). Experiments in Algorithmic Governance: An ethnography of “The DAO,” a failed Decentralized Autonomous Organization. In M. Campbell-Verduyn (Ed.), Bitcoin and Beyond: The Challenges and Opportunities of Blockchains for Global Governance (pp. 157–177). New York: Routledge.
Hsieh, Y.-Y., Vergne, J.-P., & Wang, S. (2017). The Internal and External Governance of Blockchain-Based Organizations: Evidence from Cryptocurrencies. In Bitcoin and Beyond: Blockchains and Global Governance. New York: Routledge. Retrieved from https://papers.ssrn.com/abstract=2966973
Governance. (2018). Ethereum Community Conference, Paris. Retrieved from https://www.youtube.com/watch?v=w8DjFbCTjus
Morabito, V. (2017). Business Innovation Through Blockchain: The B3 Perspective. Cham, Switzerland: Springer. Retrieved from http://www.springer.com/de/book/9783319484778
O’Dwyer, R. (2018). Calculated Risk: Liberal Governmentality, Risk and Blockchain technologies. Retrieved from http://www.academia.edu/35332646/Calculated_Risk_Liberal_Governmentality_Risk_and_Blockchain_technologies
DuPont, Q. (2018). Cryptocurrencies and Blockchains. Cambridge, UK: Polity Press.
Tapscott, A. (2014). A Bitcoin Goverance Network: The Multi-Stakeholder Solution to the Challenges of Cryptocurrency (pp. 1–75). Global Solution Networks. Retrieved from http://gsnetworks.org/wp-content/uploads/DigitalCurrencies.pdf
Rooney, H., Aiken, B., & Rooney, M. (2017). Q. Is Internal Audit Ready for Blockchain? Technology Innovation Management Review; Ottawa, 7(10), 41–44. Retrieved from https://search.proquest.com/docview/1963139722/abstract/BFF5FEFA34634864PQ/1

Interested in writing a blog post about your research? Contact us with a short pitch.

Raval, S. (2016). Decentralized Applications: Harnessing Bitcoin’s Blockchain Technology. O’Reilly Media, Inc.
Iansiti, M., & Lakhani, K. R. (2017, February). The Truth About Blockchain. Harvard Business Review, 11.
Allen, D. W. E., Berg, C., & Novak, M. (2018). Blockchain: an entangled political economy approach. Journal of Public Finance and Public Choice, 33(2), 105–125. https://doi.org/10/gf8gfw
Kaiser, B., Jurado, M., & Ledger, A. (2018). The Looming Threat of China: An Analysis of Chinese Influence on Bitcoin. ArXiv:1810.02466 [Cs]. Retrieved from http://arxiv.org/abs/1810.02466
Cai, W., Wang, Z., Ernst, J. B., Hong, Z., Feng, C., & Leung, V. C. M. (2018). Decentralized Applications: The Blockchain-Empowered Software System. IEEE Access, 6, 53019–53033. https://doi.org/10.1109/ACCESS.2018.2870644
Buterin, V. (2018). Governance, Part 2: Plutocracy Is Still Bad. Retrieved September 18, 2019, from https://vitalik.ca/general/2018/03/28/plutocracy.html
Zamfir, V. (2017, December 3). Against on-chain governance. Retrieved September 18, 2019, from https://medium.com/@Vlad_Zamfir/against-on-chain-governance-a4ceacd040ca
Tang, Y., Xiong, J., Becerril-Arreola, R., & Iyer, L. (2019). Ethics of blockchain. Information Technology & People. https://doi.org/10.1108/ITP-10-2018-0491
Wu, K., Peng, B., Xie, H., & Huang, Z. (2019). An Information Entropy Method to Quantify the Degrees of Decentralization for Blockchain Systems. In 2019 IEEE 9th International Conference on Electronics Information and Emergency Communication (ICEIEC) (pp. 1–6). https://doi.org/10/gf78pv
Sarker, A., Wuthier, S., & Chang, S. (2019). Anti-Withholding Reward System to Secure Blockchain Mining Pools. In 2019 Crypto Valley Conference on Blockchain Technology (CVCBT) (pp. 43–46). https://doi.org/10/gf78pw
Mei, H., Gao, Z., Guo, Z., Zhao, M., & Yang, J. (2019). Storage Mechanism Optimization in Blockchain System Based on Residual Number System. IEEE Access, 7, 114539–114546. https://doi.org/10/gf78pd
Zhu, X. (2019). Research on blockchain consensus mechanism and implementation. IOP Conference Series: Materials Science and Engineering, 569, 042058. https://doi.org/10/gf78pm
Ding, X., & Yang, J. (2019). An Access Control Model and Its Application in Blockchain. In 2019 International Conference on Communications, Information System and Computer Engineering (CISCE) (pp. 163–167). https://doi.org/10/gf78n8
Albakri, A., Harn, L., & Maddumala, M. (2019). Polynomial-based Lightweight Key Management in a Permissioned Blockchain. In 2019 IEEE Conference on Communications and Network Security (CNS) (pp. 1–9). https://doi.org/10/gf78n9
Wong, L.-W., Leong, L.-Y., Hew, J.-J., Tan, G. W.-H., & Ooi, K.-B. (2019). Time to seize the digital evolution: Adoption of blockchain in operations and supply chain management among Malaysian SMEs. International Journal of Information Management. https://doi.org/10/gf78n4
Fowler, M. D. (2018). Linking the Public Benefit to the Corporation: Blockchain as a Solution for Certification in an Age of “Do-Good” Business. Vanderbilt Journal of Entertainment & Technology Law, 20(3), 881–917. Retrieved from https://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=129348100&site=eds-live
Malamas, V., Dasaklis, T., Kotzanikolaou, P., Burmester, M., & Katsikas, S. (2019). A Forensics-by-Design Management Framework for Medical Devices Based on Blockchain. In 2019 IEEE World Congress on Services (SERVICES) (Vol. 2642-939X, pp. 35–40). https://doi.org/10/gf78n3
Rondanini, C., Carminati, B., & Ferrari, E. (2019). Confidential Discovery of IoT Devices through Blockchain. In 2019 IEEE International Congress on Internet of Things (ICIOT) (pp. 1–8). https://doi.org/10/gf78n2
Bagozi, A., Bianchini, D., Antonellis, V. D., Garda, M., & Melchiori, M. (2019). Services as Enterprise Smart Contracts in the Digital Factory. In 2019 IEEE International Conference on Web Services (ICWS) (pp. 224–228). https://doi.org/10/gf78nz
Zhuang, Q., Liu, Y., Chen, L., & Ai, Z. (2019). Proof of Reputation: A Reputation-based Consensus Protocol for Blockchain Based Systems. In Proceedings of the 2019 International Electronics Communication Conference (pp. 131–138). New York, NY, USA: ACM. https://doi.org/10/gf78n7
Kolokotronis, N., Brotsis, S., Germanos, G., Vassilakis, C., & Shiaeles, S. (2019). On Blockchain Architectures for Trust-Based Collaborative Intrusion Detection. In 2019 IEEE World Congress on Services (SERVICES) (Vol. 2642-939X, pp. 21–28). https://doi.org/10/gf78n6
Kano, Y., & Nakajima, T. (2018). A novel approach to solve a mining work centralization problem in blockchain technologies. International Journal of Pervasive Computing and Communications. https://doi.org/10/gf78pc
Firdaus, A., Anuar, N. B., Razak, M. F. A., Hashem, I. A. T., Bachok, S., & Sangaiah, A. K. (2018). Root Exploit Detection and Features Optimization: Mobile Device and Blockchain Based Medical Data Management. Journal of Medical Systems, 42(6), 112. https://doi.org/10/gdmjdn
Joshi, A. P., Han, M., & Wang, Y. (2018). A survey on security and privacy issues of blockchain technology. Mathematical Foundations of Computing, 1(2), 121. https://doi.org/10/gf78pb
Nazarov, A. D., Shvedov, V. V., & Sulimin, V. V. (2019). Blockchain technology and smart contracts in the agro-industrial complex of Russia. IOP Conference Series: Earth and Environmental Science, 315, 032016. https://doi.org/10/gf78pk
Jessel, B., & DiCaprio, A. (2018). Can blockchain make trade finance more inclusive? Journal of Financial Transformation, 47, 35–50. Retrieved from https://ideas.repec.org/a/ris/jofitr/1608.html
Hyun, S., Lee, J., Kim, J.-M., & Jun, C. (2019). What Coins Lead in the Cryptocurrency Market: Using Copula and Neural Networks Models. Journal of Risk and Financial Management, 12(3), 132. https://doi.org/10/gf78pj
Khan, S., & Khan, R. (2018). Multiple Authorities Attribute-Based Verification Mechanism for Blockchain Mircogrid Transactions. Energies, 11(5), 1–13. https://doi.org/10/gdtd4q
Yang, G., Li, C., & Marstein, K. E. (2019). A blockchain‐based architecture for securing electronic health record systems. Concurrency and Computation: Practice and Experience. https://doi.org/10/gf78ph
Gopalakrishnan, P. K., & Behdad, S. (2019). A Conceptual Framework for Using Videogrammetry in Blockchain Platforms for Food SupplyChain Traceability. Proceedings of the ASME 2019 International Design Engineering Technical Conferences & Computers and Information in Engineering Conference, IDETC/CIE 2019, August 18-21, 2019, Anaheim, California, USA. Retrieved from https://par.nsf.gov/biblio/10106432-conceptual-framework-using-videogrammetry-blockchain-platforms-food-supplychain-traceability
Wang, L., Luo, X. (Robert), & Lee, F. (2019). Unveiling the interplay between blockchain and loyalty program participation: A qualitative approach based on Bubichain. International Journal of Information Management, 49, 397–410. https://doi.org/10/gf78pt
Sun, Y., Xiong, H., Yiu, S. M., & Lam, K. Y. (2019). BitVis: An Interactive Visualization System for Bitcoin Accounts Analysis. In 2019 Crypto Valley Conference on Blockchain Technology (CVCBT) (pp. 21–25). https://doi.org/10/gf78ps
Ferrag, M. A., & Maglaras, L. (2019). DeliveryCoin: An IDS and Blockchain-Based Delivery Framework for Drone-Delivered Services. Computers, 8(3), 58. https://doi.org/10/gf78pr
Liang, X., Du, Y., Wang, X., & Zeng, Y. (2019). Design of A Double-blockchain Structured Carbon Emission Trading Scheme with Reputation. In 2019 34rd Youth Academic Annual Conference of Chinese Association of Automation (YAC) (pp. 464–467). https://doi.org/10/gf78pq
Tiwari, A. K., Raheem, I. D., & Kang, S. H. (2019). Time-varying dynamic conditional correlation between stock and cryptocurrency markets using the copula-ADCC-EGARCH model. Physica A: Statistical Mechanics and Its Applications, 535, 122295. https://doi.org/10/gf78pp
Dittmann, G., & Jelitto, J. (2019). A Blockchain Proxy for Lightweight IoT Devices. In 2019 Crypto Valley Conference on Blockchain Technology (CVCBT) (pp. 82–85). https://doi.org/10/gf78pz
Luo, Y., Wang, Z., Fan, J., Li, Y., & Bai, J. (2019). A New One-time Address Scheme for Blockchain. In 2019 IEEE 9th International Conference on Electronics Information and Emergency Communication (ICEIEC) (pp. 1–5). https://doi.org/10/gf78px
Johnson, J. (2019). Bitcoin and Venezuela’s Unofficial Exchange Rate. Ledger, 4(0). https://doi.org/10/gf78pn
Malomo, O. O., Rawat, D. B., & Garuba, M. (2018). Next-generation cybersecurity through a blockchain-enabled federated cloud framework. The Journal of Supercomputing, 74(10), 5099–5126. https://doi.org/10/gfgpmj
Winnicka, A., & Kęsik, K. (2019). Idea of Using Blockchain Technique for Choosingthe Best Configuration of Weights in Neural Networks. Algorithms, 12(8), 163. https://doi.org/10/gf78pf
Ardagna, C. A., Asal, R., Damiani, E., Ioini, N. E., & Pahl, C. (2019). Trustworthy IoT: An Evidence Collection Approach Based on Smart Contracts. In 2019 IEEE International Conference on Services Computing (SCC) (pp. 46–50). https://doi.org/10/gf78n5
Ferguson, F. (2019). Bitcoin: A Reader’s Guide (The Beauty of the Very Idea). Critical Inquiry, 46(1), 140–166. https://doi.org/10/gf78nx
Ryu, H.-S., & Ko, K. S. (2019). Understanding speculative investment behavior in the Bitcoin context from a dual-systems perspective. Industrial Management & Data Systems. https://doi.org/10/gf78np
Srivastava, R. (2019). Mathematical assessment of blocks acceptance in blockchain using Markov model. International Journal of Blockchains and Cryptocurrencies, 1(1), 42–53. https://doi.org/10/gf78nm
McAliney, P. J., & Ang, B. (2019). Blockchain: business’ next new “It” technology—a comparison of blockchain, relational databases, and Google Sheets. International Journal of Disclosure and Governance. https://doi.org/10/gf78m9
Safa, M., Baeza, S., & Weeks, K. (2019). Incorporating Blockchain technology in construction management. Strategic Direction. https://doi.org/10/gf78nn
Evans, T. M., Fincham, D., Fisher, K., & Schroeder, J. (2019). Panel 2: Art Law and Blockchain 2019 AELJ Spring Symposium: Digital Art & Blockchain. Cardozo Arts & Entertainment Law Journal, (3), 589–604. Retrieved from https://heinonline.org/HOL/P?h=hein.journals/caelj37&i=625
Ferdiansyah, F., Othman, S. H., Radzi, R. Z. M., & Stiawan, D. (2019). A Study of Economic Value Estimation on Cryptocurrency Value back by Gold, Methods, Techniques, and Tools. Journal of Information Systems and Informatics, 1(2), 178–192. https://doi.org/10/gf78nk
Zheng Xuefeng, Jia Hongyu, & Wang Jinsong. (n.d.). Energy Internet Development Based on Blockchain Technology. ICCREM 2019, 167–178. https://doi.org/10/gf78nj
Tsuchida, T., Takita, M., Shiraishi, Y., Mohri, M., Takano, Y., & Morii, M. (2019). Authentication Scheme Using Pre-Registered Information on Blockchain. IEICE Transactions on Information and Systems, E102.D(9), 1676–1678. https://doi.org/10/gf78ng
%d bloggers like this: