Blockchain Governance 101

There’s a lot of confusion about blockchain governance. Many participants and potential participants inside and outside the blockchain space fail to effectively participate in blockchain governance. I hope that this situation will improve with more public understanding of the basics of blockchain governance, the possible governance outcomes, and how they can most effectively participate in blockchain governance.

I don’t have all the answers, and I know that I’m missing relevant background knowledge. However I have been thinking about, watching, and actively participating in blockchain governance for 3 - 4 years. I feel like I need to share my current perspective, even though my research on the topic is still ongoing.

I’m not going to define blockchain governance, but I will talk about the things I pay attention to when I’m thinking about blockchain governance. I like to think about governance generally, and I like to apply general governance concepts to blockchain governance. So first I’ll talk about governance:

Governance Basics

Generally, governance is about decisions that ultimately affect people¹ (people called “stakeholders”). It’s about the processes that participants in governance use to make decisions. It’s also about how they coordinate around decisions and decision-making processes. It includes the establishment, maintenance, and revocation of the legitimacy of decisions, decision making processes, norms, and other mechanisms for coordination.

While there are some key terms in the above paragraph, I’m only going to talk through legitimacy, because I’m not using any of the other terms in a very specialized way. I say that a decision, decision-making process or coordination mechanism “has legitimacy” if there is common knowledge² that participants in governance will implement the decision, or use the decision-making process or coordination mechanism.

The important point here is this: if a coordination mechanism is legitimate, people will (justifiably) act like it’s a fact that people will use it. When a decision is legitimate, they don’t need to worry about whether other people will also implement it, they can be confident that they will. On the other hand, if it’s illegitimate then they will act like it’s a fact that people won’t use it. I see the establishment of legitimate decisions, decision-making processes and coordination mechanisms as a clear, elegant solution to coordination problems.

So when I say that governance is about the establishment, maintenance, revocation of legitimacy, I mean that it’s about how people collectively coordinate (in common knowledge) on what decisions to implement, what processes to use, what norms to have, and what other mechanisms for coordination to adopt.

The process of legitimizing and delegitimizing things is a coordination problem, and it can be highly political when different participants want to coordinate around competing outcomes. In my estimation, politics is a coordination “game” played between participants in governance who signal their preferences over possible outcomes in an effort to get everyone to coordinate on their preferred outcome, whether it is to A) make decisions that can’t be made by an already existing legitimate process, or B) establish, maintain and revoke the legitimacy of decisions, decision making processes and coordination mechanisms.

In my experience, most of the work in governance is playing politics, and I think all of this discussion is directly relevant to blockchain governance. Blockchains are governed, and blockchain governance outcomes will be driven by the politics of participants in the public blockchain space.

Blockchain Governance Basics

This section has two parts, the first describing the decisions that are fundamentally a part of blockchain governance because of the nature of blockchain technology, and second about “forking”.

Decisions in Blockchain Governance

Blockchains are distributed systems. They are essentially consensus protocols, which means that different nodes in the network (e.g. computers on the internet) have to be running compatible software. Like really compatible software.

Deployments of blockchains typically have “blockchain communities” that rely on them and govern the blockchain protocol.

“Node operators” are the owners and managers of nodes that run the protocol. Most node operators don’t want to write much software, and it’s a technical challenge for anyone to independently write compatible implementations of any consensus protocol even if they have a specification. As a result, node operators rely on software repositories (usually hosted on Microsoft/Github servers) to provide them with the software they choose to run.

“Core developers” of a blockchain are software developers who work on the software that implement that protocol. Developers have processes that are supposed to assure the quality of the software they release, and are generally very interested in maintaining the legitimacy of their software repositories because they want to see people using their software (as opposed to someone else’s).

Blockchains are normally associated with trademarks. A blockchain’s trademark may or may not be registered, but blockchain communities use trademarks to market their blockchain and to make it easy for users to identify which blockchain they are interacting with.

For a blockchain community to successfully govern its blockchain, the members need to coordinate, or somehow be coordinated. At a minimum this means that node operators, developers, and the users of the trademark have to coordinate.

Blockchains can have big communities that form diverse ecosystems that include many participants and stakeholders that aren’t core developers, node operators, and users of trademarks. These stakeholders might include block explorers and other low level service providers, exchanges, speculators, application developers, users, journalists and passive observers, just to name just a few. On the other hand, blockchain communities might also be just a team of core developers running their own nodes, promoting their protocol in hopes of one day having a bigger community.

This says something about the decisions that blockchain governance necessarily makes: that core developers have to choose how to release software, that node operators have to decide what software to run, that trademark users have to decide how they use the blockchain’s trademark, and that these decisions have to be coordinated by the blockchain community. But it notably says nothing about the processes, norms, coordination mechanisms, and politics that will inevitably drive these decisions for any large blockchain community.

Forking in Blockchain Governance

Blockchains have network effects, and blockchain communities generally would prefer to stay together than to fork apart. However, because blockchains are software running on the internet, a portion of the community that questions the legitimacy of a governance decision can make a copy of the blockchain network (and corresponding software repositories) and maintain a “fork” of the blockchain outside of the governance of the original chain. See Bitcoin Cash and Ethereum Classic for case studies of blockchain forks.

Forking a blockchain is a coordination problem because participants might have peers who are signaling their intent to go adopt different sides of the fork, and possibly because of contention about which post-fork community gets to use the pre-fork trademark.

As a general rule, I recommend that the reader imagine that forking a blockchain is much easier than forking a nation-state, but much harder than forking Linux³. As another general rule, there is naturally a “power law” distribution, where a majority of blockchains have relatively small communities relative to a small number of blockchains with relatively large communities.

This “power law” rule means that even though it is very possible to fork, there will only ever be a small number of forks that are ultimately successful enough to be considered a “major blockchain”. As a result, the blockchain governance regimes of a small number of major blockchains will determine governance outcomes for the entire blockchain space.

These outcomes are high stakes outcomes for anyone participating in the space, and for people whose lives might be impacted by blockchain technology in the future. This is why we need to be concerned about the blockchain governance of every major public blockchain (existing or merely aspiring).

Blockchain Governance Outcomes

Blockchain governance is still nascent, so there is still a wide range of possible outcomes. Because these outcomes have the potential to have a significant impacts on people’s lives, and because people have diverging interests, blockchain governance outcomes will be a result of politics.

I’m going to share five possible outcomes of blockchain governance, to paint some of the political landscape. These scenarios aren’t all mutually exclusive, but they are distinct visions of the future of blockchain governance.

Autonomous Blockchains

In this vision for the future of blockchain governance, blockchain governance essentially does nothing other than make sure that the blockchain keeps functioning according to the pre-determined rules of protocol. This is accompanied by a norm that the protocol should not change unless absolutely necessary.

In this governance outcome, the only legitimate decision in almost any circumstance is to allow the protocol to run unchanged. The appeal of this governance model is that it minimizes the cost of coordinating around the governance the protocol by minimizing the amount of governance that is done. It addresses blockchain governance by eliminating most latitude to make any decisions whatsoever.

The downside to this vision is that blockchain governance will not take responsibility for harm caused by use of the blockchain, whether unintentional or caused by malicious actors. Read my blog titled “blockchains considered (potentially) harmful” to get an idea of what a future with autonomous blockchains could mean.

Blockchain Governance Capture

In this scenario, blockchain governance is captured by an existing governance system. I’m going to briefly describe four examples of capture:

• Corporate capture, where blockchain governance is captured by the corporate governance of a corporation that becomes the sole source of legitimacy in blockchain governance.
• State capture, where blockchain governance of different “regional blockchains” is captured by the regulators and courts of major jurisdictions. For example one day “Ethereum USA” might enforce US economic sanctions, “Ethereum Europe” might enforce GDPR, while “Ethereum China” might enforce capital control policies.
• Developer capture, where the blockchain core developers capture governance because their software development process becomes the only source of legitimacy in blockchain governance.
• Cartel capture, a cartel of participants in blockchain governance (for example, a cartel of node operators or a cartel of coin holders) collude to control blockchain governance.

In this scenario, blockchain governance processes and norms are determined by the governance norms and processes of the capturing entity. In this scenario the capturing entity has control over all the important sources of legitimate blockchain governance decisions.

The appeal of this governance scenario is that capture is something we’re used to, and it benefits from the legitimacy, flexibility and maturity of the governance of the capturing entity. The downside is that decisions made by captured blockchain governance may represent the interests of the parties who control the entity who has captured governance, and not necessarily the interests of the stakeholders who are affected by their decisions.

Internet Censorship as Blockchain Governance

In this scenario, rather than allowing their publics to be exposed to or to access public blockchains, major jurisdictions outlaw and censor access to the blockchain that do not comply with local regulations.

The appeal of this approach is that it allows local governments to maintain sovereignty, giving the local regime more control over the public use of international blockchains. For example, this might be motivated by consumer protection, privacy and data protection, or preventing intellectual property rights infringement. If a regime needs to impose capital controls to maintain a currency peg they might find censorship to be a valuable way to prevent circumvention, for another example.

The main downside of this vision is that it comes at a cost of people’s free access to the global public internet, on top of denying access to any benefits that could be acquired from the use of global public blockchains. It’s also technically difficult to censor access to public blockchains without censoring access to unknown IPs because it requires deep packet inspection. At the same time the censorship wouldn’t be perfect, as anyone with enough motivation, knowledge, resources and/or the friends will be able to circumvent the censorship regime in most jurisdictions.

Governance via Public International Law or Diplomacy

In this possible blockchain governance outcome, public blockchains are governed by international institutions from the legal tradition. This could be an entity chosen or formed by the United Nations, or established through a multilateral agreement between states.

The appeal of this outcome is that it has the potential to actively govern global blockchains that are accessible to the global public, while avoiding a lot of the downside of autonomous blockchains. The downside is that legitimizing an international governance institution may be difficult in some jurisdictions, and reaching multilateral agreement on the goals of regulation and the means to enforce their terms it could be harder yet. This scenario would require that states locally enforce globally mandated blockchain governance decisions, which can be challenging if the decisions are unpopular locally.

Governance via International Private Cooperation

In this scenario, there is a global blockchain governance system that is open for participation by the public. That system could be driven by associations of private people, corporations and NGOs. This is arguably how we do internet governance today, through institutions like ICANN, IETF, WC3, IGF, etc.

The appeal of this vision is that it allows global public blockchains to be accessible by a global public while avoiding a lot of the downsides of autonomous software. It could potentially achieve a high amount of legitimacy, because it is a multi-stakeholder governance arrangement. The downside to this vision is that it may be hard for the system to make decisions (or to legitimize any material processes or coordination mechanisms) because it brings together a wide range of stakeholders with divergent interests, and because there is a lack of international legal structures that can actually force governance outcomes.

Each of these blockchain governance outcomes is possible, and it isn’t at all clear what the future of blockchain governance will look like, at least not to me.

I encourage you to think about how each of these scenarios might impact you, to be skeptical about my assumptions and to come up with your own visions of the possible futures of blockchain governance, and to think about how those affect you, too. Think about how the outcomes impact the people you know.

And then if these outcome matter to you, then I encourage you to participate in blockchain governance by engaging in coordinated political action to avoid the outcomes you want to avoid, and to bring about the outcomes you want to see.

How to Participate in Blockchain Governance

Signal your preferences for the future of blockchain governance — they are your political leanings, and the future of blockchain governance is going to be a result of politics.

Learn about the politics of your peers, ask them to clarify their positions, and encourage them to publicly signal their political preferences if they haven’t already. Identify which blockchain communities are dominated by what political orientations, and see whether they are leaning in the direction that you’d like to go. Find your political allies.

Try to convince people to become aligned with your preferred vision of our shared blockchain governance future. You should do this in public and in private, and you should do it strategically, knowing your political opponents and their tactics. By doing this you can shape the political environment of the blockchain space.

The politics of a blockchain community directly and immediately impacts the governance of that community’s blockchain.

Participants in blockchain governance cannot ignore their political environment. Core developers can’t ignore it. Node operators can’t ignore it. The legitimacy of their decisions and decision-making processes depend on the political realities in their blockchain communities.

So do your best to delegitimize governance decisions, processes and norms that lead to governance outcomes you want to avoid. Do your best to prevent the legitimization of decisions, processes and mechanisms for coordination that lead to the outcomes you want to avoid. Do your best to legitimize and maintain the legitimacy of decisions, processes and norms that lead to governance outcomes that you want to bring about. You can do this from your laptop or your phone. Express your interests.

It’s early enough that your committed individual participation can and will have a big impact on the future of the blockchain space.

Thank you for reading! If you want to leave feedback or let me know how you feel about these outcomes, please fill out this short survey.

¹also corporations

² If a group of people have “common knowledge” of something then they act as if it’s a known fact (within the group), and they act like they know that it’s a known fact, and also act like they know that they know that it’s a known fact, and so on. I know that’s confusing, sorry.

³an open source operating system with many successful forks