Understanding Public Blockchain Governance

Governance by network protocols can only work if governance of the network is robust, fair and predictable.

The crypto-anarchist narrative and vision behind blockchain technology hold that blockchains are powerful tools with which to decentralise many of society’s social, political, and economic infrastructure.

Blockchains – which can be thought of as general-purpose transaction ledgers – could be used to symbolically represent any asset. Bitcoin, for example, represents digital cash and aims to change the nature of money in society by challenging the state’s control of monetary policy and taxation.

However, the applications of blockchain technology extend beyond digital cash. Though corporations and governments provide the economic and political infrastructure for human exchange and interaction, technologists argue that blockchain applications could provide this same infrastructure without the intermediaries and gatekeepers, thus redressing existing power asymmetries.

Concretely, a blockchain is a distributed ledger that records all the transactions that take place within its network. Exchange on blockchains follow the rules prescribed by their protocols, leading them to be characterised as being decentralised, immutable, apolitical and trustless.

Their protocols, defined in code, are unambiguous, comprehensive and hard to change. Removing human agency also eliminates what makes the enforcement of rules arbitrary, corrupt or inconsistent; unlike in the social world, within a blockchain, the protocol is the law that defines and regulates how people interact.

I refer to this idea as ‘governance by the network’.

This is a notable achievement. In the social sciences, sociologists and political scientists have long been preoccupied with how to foster trust and overcome what is called problems of cooperation and coordination.

Game-theoretic models like the prisoner’s dilemma illustrate the sordid outcome of human interaction in the absence of institutional and organisational fall-backs.

The resulting challenge has been to find ways to impose limits on the power of these necessary institutions and organisations.

Blockchains are a game changer because they can replace these corruptible and fallible social constructs with an impartial technological tool that would resolve the problem of cooperation and coordination.

However, whilst governance by the network can indeed lead to novel ways of organizing social life, it does not circumvent the fact that the network must itself be created and governed. Blockchains are sophisticated and complex technological systems.

The protocol that defines a blockchain, the software in which it is instantiated and the hardware on which it ultimately runs are all inputs that are produced by diverse groups of people.

Moreover, these components are constantly changing to integrate better technology, render the network more efficient or patch vulnerabilities. This process of development is both a necessary part of a blockchain’s growth and a fundamentally social process.

How the actors come together to produce, maintain or change the inputs that make up a blockchain is a question of governance.

I call this the governance of the network.

For a while, it was assumed that this process was purely driven by technical standards and constraints. However, it is hard to maintain this assertion in the face of mounting evidence to the contrary. Bitcoin’s block size debate is perhaps the most prominent example of a blockchain community facing complex governance problem that goes beyond the technical.

What began as a disagreement about how best to scale the network evolved into a struggle over control of the protocol. The Ethereum community faced the DAO crisis where a significant hack led to the rollback of the Ethereum blockchain to neutralise the hack. Some in the Ethereum community disagreed with this, arguing that it violated the principle of immutability and went against the social contract of the project.

They split from the community and continued running and maintaining the version of the blockchain where the hack had happened. These conflicts have been divisive and costly, and they have undermined trust in the technology.

Most importantly, these governance problems are unlikely to stop. Blockchains, by regulating human exchange, have serious distributional, ethical and political consequences. In other words, the rules that a blockchain enforces will inevitably create winners and losers. Those that produce and maintain a blockchain have varying degrees of control over these outcomes.

Naturally, this results in conflict over what the rules will be; and, more importantly, over who gets to set those rules. The development of the blockchain becomes politicised as different interests try and assert control over the evolution of the protocol to shape it to suit them.

Understanding blockchain governance is critical for mitigating social conflict over a blockchain protocol and in ensuring it remains functional.

The promise of governance by the network – a techno-institutional solution to solving the problems of cooperation and coordination – can only work if the governance of the network is robust, fair and predictable.

There has been a tendency within the wider blockchain community to dismiss governance issues, sometimes even to deny that they exist. There are a number of reasons why this is mistaken.

Social scientists have long known that even in supposedly non-hierarchical social communities, power relations and politics emerge to structure human interaction. Studies of open-source software projects and Internet governance, both comparable to blockchains, have shown the existence of governance in this context, whether formal or informal.

The study of the governance of blockchains does not need to call for the formalisation and institutionalisation of current practices; instead, it should be seen as a necessary step to better understand the current ways in which blockchains are produced, how they change, and how conflicts over their protocols are resolved.

Odysseas is studying a PhD at the University of Oxford – Oxford Internet Institute and the Alan Turing Institute. His research looks at the governance of public blockchains, such as Bitcoin and Ethereum. The purpose of his research is to better understand how different blockchain communities are able to reach collective action to resolve issues to do with the development, maintenance, and control of blockchain protocols.

This article also appears on Oxford Internet Institute.