Understanding Blockchain Governance: A Deep Dive

Blockchain governance is a fascinating yet complex topic, often sparking debates among tech enthusiasts and experts. It represents a paradigm shift, rewriting the rules of governance from scratch. However, despite significant efforts to create self-governing systems within blockchain, these innovations have only met with limited success. This article delves into the intricacies of blockchain governance, drawing insights from recent research to shed light on its challenges and potential.

The Human Element in Blockchain

“there are humans behind the code... they have human emotion, they have human bias and they are the creators of blockchain technology.”

— Sophie Nappert

At the core of blockchain technology lies a crucial but often overlooked component: humans. Despite the highly technical nature of blockchain, it is ultimately created and maintained by people—developers, coders, and users. These individuals, with their emotions, biases, and behaviors, play a critical role in the governance of blockchain systems. As Sophie Nappert, co-founder of ArbTech, explains, "there are humans behind the code... they have human emotion, they have human bias and they are the creators of blockchain technology."

In a decentralized network, where financial optimization is a primary incentive, human attitudes inevitably surface, leading to potential disputes and highlighting the need for robust governance mechanisms. "If you put a bunch of humans together and the optimization of finances (money) as the primary incentive of the blockchain ticking along, then you can see human attitudes coming to the fore including those attitudes that foster potential disputes hence the need for governance," Nappert points out.

Key Research on Blockchain Governance

A groundbreaking paper titled "Blockchain Governance in the Wild" published in Cryptoeconomic Systems (Volume 3, Issue 1, April 22, 2024) by Kevin Werbach, Primavera De Filippi, Joshua Tan, and Gina Pieters provides valuable empirical data on governance practices across 23 blockchain projects. This study stands out for several reasons:

1. Comparative Analysis: Unlike previous theoretical studies, this research offers a comparative analysis of different blockchain networks and communities. Nappert highlights that "there's been very little comparative work so far among different blockchain networks or communities."

2. Practical Implementation: The focus is on practical implementations and plans of specific projects rather than theoretical potential. According to Nappert, "this is not so much a theoretical study of potential successes or failures but instead they have tried to survey practical implementations and the plans of specific projects."

3. Social Norms and Informal Practices: The study goes beyond on-chain governance to examine social norms, informal practices, and institutional entities that influence governance. Nappert elaborates, "they have not stopped at examining only the governance decisions encoded on chain but also considered what they called social norms, informal practices, and institutional governing entities associated with the project."

“they have not stopped at examining only the governance decisions encoded on chain but also considered what they called social norms, informal practices, and institutional governing entities associated with the project.”

— Sophie Nappert

Governance Power Clusters

The authors identify three key power clusters in off-chain governance:

1. Key Stakeholders: This includes developers, validators, and users who directly interact with the blockchain.

2. Charismatic Leaders: Figures like Bitcoin's creator Satoshi Nakamoto and Ethereum's Vitalik Buterin wield significant influence within their communities.

3. Legal Entities: Often non-profits, these foundations manage blockchain projects and guide their development.

These clusters highlight the complex interplay between different actors in blockchain governance, making it an intriguing sociological and ethnographic study. "The explicit rules of blockchain governance structures can be read from their software code or documentation but neither the code nor the documentation can tell us how those rules interact with more informal off-chain practices," Nappert observes.

Decentralization: Myth or Reality?

One of the most thought-provoking insights from the research is the questioning of the decentralization mantra. While blockchain technology promises decentralization, the reality of governance suggests otherwise. The influence of key stakeholders, charismatic leaders, and legal entities indicates that true decentralization in governance may be more myth than reality. Nappert remarks, "perhaps the mantra of decentralization at the end of the day when one speaks of governance is a myth and it is a myth that in governance terms can probably not be sustainable."

Conclusion

Blockchain governance remains a challenging and evolving field. The human element, coupled with the influence of off-chain power clusters, complicates the notion of decentralized governance. The study by Werbach et al. provides crucial insights into these dynamics, offering a foundation for future research and development in blockchain governance. As we continue to explore this field, it is essential to balance the ideals of decentralization with the practical realities of human interaction and influence.

For further reading on new technology and its legal implications, visit the ArbTech lexicon.

Disclaimer: This blog post is informative only. No representations are made, or responsibility taken, for its accuracy. It does not constitute advice of any nature, legal or otherwise.

Happy reading!