Does Blockchain Need Governance?

Eric Alston (University of Colorado)
Wilson Law (Baylor University)
Ilia Murtazashvili (University of Pittsburgh)
Martin Weiss (University of Pittsburgh)

Abstract : Permissionless (or public) blockchain networks provide a new form of decentralized private governance in the digital sphere. The unique nature of permissionless blockchain networks – especially that anyone can participate in them - means the polycentric balance of governance forces to which they are subject merits more granular analysis. We provide a comprehensive typology of the predominant forms of cryptocurrency blockchain governance and discuss their implications for the ongoing development of these novel organizational forms. In our typology, blockchain is governed by blockchain protocol, along with a set of subsidiary, competitive, and superior governance forces. Governance by code includes aspects of the constitution of blockchain. Governance forces subsidiary to the blockchain protocol include distinctions between discrete constituent groups like miners and users, and how protocol choices themselves lead to specific concentrations of power in practice. Moreover, cryptocurrency users have choice in terms of their digital tokens of value, as well as currencies and other liquid stores of value writ large, which means competitive forces also shape governance choices on a given cryptocurrency blockchain. Finally, blockchain is a polycentric enterprise: cryptocurrency users, participants, and exchanges are subject to a variety of governance forces that are superior to a given cryptocurrency network itself; any given individual playing one of those roles is subject to a variety of legal restrictions surrounding property, contract, tax and securities law in whatever jurisdiction they reside, at a minimum. In sum, permissionless blockchains are themselves a discrete form of governance but will nonetheless inevitably be subject to other processes of governance, both subsidiary and superior to the organization whose information is contained on the distributed ledger controlled by a given blockchain protocol.

How the Network Neighborhood Influences Partnerships: from Handshakes to Formal Collaboration Among Us Fire Departments

Jay Horwitz (University of Toronto)
Bill McEvily (University of Toronto)
Anita McGahan (University of Toronto)

Abstract : An extensive body of research investigates the conditions giving rise to informal agreements and formal contracts between two partnering organizations. A largely separate body of work has addressed the emergence of ties within organizational networks. In this paper, we contribute to the integration of insights from network theory and contract theory. Specifically, we explore how the level of formality in an agreement between two parties depends on the broader network of exchange relationships in which they are embedded. The analysis draws on the network literature to develop a theory of governance choice that emphasizes the network neighborhood. We argue that partners’ outside ties influence the coordination, control, and information exchange within the partnership. We test the validity of our claims by analyzing collaborative agreements among U.S. Fire Departments between 1999 and 2010. The results indicate that the network neighborhood significantly influences the way that partners work together.

Is Blockchain Social? a Polycentric Governance Perspective for Rule Setting in Crypto Environments

Francesco Pierangeli (King's College London)
Ashwin J. Mathew (King's College London)

Abstract : Over the last decade blockchain has attracted a lot of attention due to its potential applications in the economy. The technology behind blockchain promotes fully decentralized systems where individuals can interact in an atomic, secure, and anonymous fashion to the point that market exchanges become “trustless”. This is in contradiction to the traditional view of transacting, characterized by the need of centralized authorities that regulate, oversee and help to establish trust among parties which reduces frictions related to value exchange. The dichotomy between the virtues of decentralized blockchains against the problems of centralized governance has monopolized the discussion around the economics of blockchain, driven by disintermediation, efficiency and privacy. Drawing from the work of Elinor Ostrom, we argue that this is a fundamentally false dichotomy. As Ostrom reminds us, governance is very much a social problem that goes beyond the rhetoric of decentralized market efficiency against centralized state authority. The work of Ostrom and her colleagues draws attention to the fundamentally social processes of rule setting in the governance of complex economic systems. All blockchains require governing consensus rules that define their operation, but the question about the rule setting process within blockchain ecosystems has largely been neglected in the literature. To illustrate our argument, we will analyse the rule setting process in two crypto based environments: public (Bitcoin) and community-based (Ethereum). This paper represents a first theoretical attempt to investigate how we can use Ostrom’s fundamental arguments about markets, states, and polycentric governance to understand the social processes of governance in blockchain.