By :Prof. Dr. M.K. Bhandari
The concept of Blockchain Governance is quite significant and at the same time very fascinating. So before we go into the details of the same, let’s try and understand- What is the Concept of Good Governance?
Good Governance is an intermediate term that describes how public institutions conduct public affairs and manage public resources. “Governance” basically is defined process of decision making and the process by which the decisions are implemented or not implemented.
Good Governance should be participatory, consensus oriented, accountable, transparent, responsive, effective, efficient, equitable and inclusive and all these forms the characteristics of a Good Governance.
Now let’s get started to understand the Concept of Blockchain Governance: –
Blockchain Governance is the mechanism by which the decentralized networks adapt and change over time. There are multiple networks that are involved here and designing of each network is extremely critical.
Blockchain Governance is deeply rooted in the fact that the interests of a network’s stakeholders change as they interact with and generate value from the network. The Blockchain networks have great ability to evolve and upgrade amidst ongoing development.
Blockchain Governance is broadly categorized further into the following two forms: –
- On-Chain Governance– This one is the most recent iteration of governance in Blockchain and brings in some great and fascinating concepts. This is process which implements some form of direct democracy, through voting mechanism which are optimized for a particular network
- Off-Chain Governance- This basically resembles to the traditional way of governing structure. This is the process in which, the network stakeholder’s coordinates amongst themselves in an informal manner. Cryptocurrencies such as Bitcoin & Ethereum follow this model of governance.
The Framework for Blockchain Governance
In the recent decades, two major developments have provided the basis for a new model. First, the advent of the Internet has created the means for stakeholders of all sizes, down to individuals, to communicate, contribute resources and coordinate action. We now no longer need Government Officials to convene for the rest of us to align our goals. Second, the businesses, academia and other nonstate stakeholders have gained the ability to play an important role in global cooperative efforts.
The combination of these developments enables the new model. For a growing list of global challenges, self-organizing collaborations can now achieve global cooperation, governance and problem solving and hence can make stronger progress than the traditional state-based institutions. During the early days of the Internet, governments showed restraint and foresight. Restraint was shown by limiting regulation and control throughout the Internet’s evolution and foresight was shown by allowing the ecosystem to flourish before trying to impose rules and regulations.
At one hand the Internet democratized information, the Blockchain democratizes value and cuts to the core of traditional industries like banking. Hence regulation of Blockchain Technologies is quintessential. Vint Cerf, who co-invented the Internet and also led the creation of the Internet Society, which has created virtually all the important Internet standards, suggested that a good starting point for blockchain would be to create a BOF (Birds of a Feather) interest group.
Let’s explore how this New Governance Network would look like?
There shall be ten types of Global Solution Networks and each would involve a combination of companies, governments, NGO’s, academics, developers and Individuals. None of them shall be controlled by UN, IMF, World Bank or the G8. All of them shall play a pivotal role in the leadership and governance of blockchain technology.
Advantages for Stakeholders
The Blockchain Governance shall not be a problem or create a problem if all its stakeholders in the Network are on the same page and have the clear understating and mutual agreement on what should be done and how it should be done.
Some of the key stakeholders in this process are suppliers who are needed to run the blockchain in permissionless blockchains. The suppliers are typically compensated for their efforts and, all else equal, benefit from increased demand for their services as a blockchain grows. The best incentive of these suppliers is to maximize the value of their inputs. Blockchain suppliers in some circumstances may benefit from their blockchain using more costly production process that results in lower output than is socially optimal.
Two other important stakeholders are developers of applications that run on a blockchain and the applications’ users. These stakeholders have a common interest in the blockchain using an efficient production process that minimizes the cost of using it. However, the rules governing a blockchain affect more than just its costs of operations—they also influence other service characteristics, such as the timeliness and security of the transactions.
A third stakeholder for the typical permission less blockchain includes those who hold (own) its cryptocurrency. These stakeholders benefit from the appreciation of their cryptocurrency, which is correlated with the usefulness of that cryptocurrency as a medium of exchange. Its usefulness is likely to be at least somewhat correlated with blockchain usage. However, the cryptocurrency holders do not internalize all of the benefits or costs associated with a blockchain. In this respect, cryptocurrency holders can be compared with the shareholders of a corporation, which have both a residual claim on the firm’s assets and hold ultimate governance power.
Hence a good, well Structured and strong blockchain governance network is quite essential considering the above challenges and conflicts. The Governance Network here plays a very vital role as this will combine all the features and attributes of the nine other GSN types.
The ultimate aim of the blockchain governance network should be to strive to be inclusive and welcome indulgence and participation from all the relevant stakeholder groups. The network should be a meritocracy, transparent, releasing all of its data, documentation for public scrutiny. In order to make this work very effectively, all the decisions should be taken unanimously as much possible by consensus in order to gain legitimacy.