Josh Stark is head of operations and legal at Ledger Labs, a blockchain consulting and development firm.
In this opinion piece, Stark seeks to provide a high-level framework for understanding the power and potential of nascent blockchain governance applications.
Governance has long been one of the most-hyped applications for blockchain technology.
However, there’s often little clarity about what “governance” means in this context. The term is used to encompass applications ranging from secure online voting, to new forms of political governance, to flawed experiments in decentralized investment funds.
First, we need to be clear about what we mean by “governance”.
Most often the term brings to mind political governance. The institutions that, according to a system of rules and laws, make up our various levels of government. Political governance includes processes like democratic elections, votes held by representative bodies like parliaments, and the particular responsibilities and powers given to different institutions.
We might also think of corporate governance: the processes used by corporations to make decisions. Corporate governance includes processes like shareholder votes, board meetings and the different levels of power and responsibility given to executives and committees.
Both of these are applications of a common set of tools designed to facilitate group decision-making. Rules, laws, institutions, processes, rights and customs that, used together, become a system that enables organizations to make decisions. Applications of governance range from highly complex systems like nation states to very simple ones – say, a private club with a simple majority voting mechanism for approving new members.
This is what I mean by “governance” for the purposes of this article – the processes and systems used to facilitate decision-making in any organization.
Note that this doesn’t refer to a particular use of those tools. Governance systems can be designed well or poorly, they can be effective or not and they can be just or unjust. But, the set of tools that lets us build any of these systems share common features, and it is the tools that might be improved by the various projects, products and technologies that make up the category of “blockchain governance” applications.
The technological requirements of governance
Any governance system requires certain basic technologies.
First, it requires a way to record a set of rules. Rules like who gets to vote, who gets to sit in parliament or who has commit access to a codebase. These rules have to be recorded somewhere securely so that they can’t be lost, destroyed or forgotten.
Importantly, we must also be able to verify that a given rule is the real rule, and not fraudulent.
Second, there must be a way for people to interact with the rules. For instance, if a rule gives you the right to vote, then you need to be able to exercise that right. You need an election: poll workers, voting booths, paper slips, vote-reading machines and other technologies required to facilitate voting. If there is no way to interact with a rule, then the rule can’t serve its purpose in the overall system.
Third, governance systems require a way to enforce the rules. What if someone cheats? What if they vote twice, or refuse to give up power when their term is up? There must be a way to compel individuals to follow the rules, otherwise the rule is again hollow. Existing governance systems use different tools to enforce their rules, like social norms or legal systems.
Let’s look at a simple example: a small charitable non-governmental organization (NGO) with a three-member board. The NGO receives funds from sponsors, and must decide how to spend the money to achieve its mandate.
Its rules are contained in a simple constitution that sets out the purpose of the organization, as well as articles of incorporation and bylaws that contain the rules that define how decisions are made. The NGO keeps a copy of these rules, and so does its lawyer, who serves as a trusted third party – a way of ensuring that they can always be certain about what the “real” rule is.
To interact with those rules, the board convenes meetings where votes are carried out and recorded.
Third, the bylaws are enforced – if necessary – by the legal system of the jurisdiction in which the NGO is registered.
Applying blockchain technology
Blockchain technology offers an elegant new way of accomplishing these three basic functions of governance.
First, blockchains are ideal for recording information in a way that can be later verified as authoritative. Information stored on a blockchain is distributed, meaning it is very difficult to destroy completely and very easy to access. Anyone can verify for themselves that a given entry on a blockchain has not been altered since it was created and verify that it was created through a particular process.
Let’s return to our NGO example and suppose it has a rule…