Blockchain Governance: What We Can Learn from the Economics of Corporate Governance

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 process by which stakeholders (those who are affected by and can affect the network) exercise bargaining powers 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 partially utilised because of the existence of implicit contracts that embed expectations of return among diverse stakeholders.

Understanding accountability in blockchain systems

“…While both private and consortium blockchains display elements of the principal–agent relationship (Lindberg, 2009; Mulgan, 2000), public blockchains eliminate the need for the separation of a principal and agent and is more concerned with the needs of all users, adopting a wider stakeholder view (Allen and Berg, 2020). Embedding accountability by design through consensus mechanisms and the alignment of incentives, public blockchains remove the requirement for explanations and justifications for decisions as discussed in Lerner and Tetlock (1999) and Messner (2009) and do not necessitate a “relationship of responsibilities” (Mulgan, 2000, p. 87) to establish accountability.…”

“…Considering the tensions Messner (2009) brings to the topic of accountability, it is vital to understand the mechanisms [2] of accountability that are constructed and utilised by principals to hold agents responsible. Indeed, how these arguments work across a broader range of stakeholders in novel arrangements such as blockchains remain less explored (Allen and Berg (2020)).…”

“…Allen and Berg (2020) take a broader stakeholder view to blockchain governance, clarifying governance as processes through which users posture their bargaining power in the network at the construction stage and permissions/operation stages of blockchain practice, beyond principals (owners) and agents (managers/central authorities/overseers). Allen and Berg (2020) explain that even regulators, auditors and developers and not merely users are implicated in the negotiation for stakeholder influence in blockchain systems. Similar arguments are put forward by Woodside et al.…”

“…In seeking to answer the above research question, we find that public blockchains eliminate the need for principal–agent separation, indeed the very relationship itself (Lindberg, 2009; Mulgan, 2000) and are possibly impacted by a range of wider stakeholders (Allen and Berg, 2020; Allen et al. , 2020).…”

Blockchain Governance: A Dynamic View

“…Blockchain governance has been studied through the lens of several theories including IT governance theory (e.g., [1,9,11]), platform governance (e.g., [12], [13], [14]), the organizational and corporate governance literature (e.g., [15], [16], [17]), agency theory (e.g., [9]), internet governance (e.g., [17]), and open-source software governance (e.g., [11]). While there is no consensus on one specific definition of blockchain governance, several terms share a common understanding among researchers.…”