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Does Blockchain governance have to be decentralized?

September 15, 2021

This blog was authored by: Alisa DiCaprio, Head of Trade and Supply Chain, R3.

TL;DR governance is the set of rules that guide the long term vision of your blockchain application. Surprisingly, decentralized applications don’t require decentralized governance.


Sometimes reality doesn’t match theory. Take blockchain, for example: it is a decentralized technology. This means that everything about it should also be decentralized, right? Not quite. 

Governance is one aspect of blockchain that isn’t as decentralized as we might expect. Decentralized governance structures exist in the world, but often not in blockchain. This is a curious outcome, but  in this short piece we will talk about why it makes perfect sense. 

Governance means you have a long term planning structure

The concept of governance means that your group has a process to plan new features, decide who can be a network member, and how to deal with problems when they inevitably arise. It is a straightforward concept that takes many different forms in practice. 

Often in government, governance is identity-based. That is, whoever fills the role of prime minister or transportation chief has to execute certain activities. 

While most governments use a centralized governance setup, we’ve seen governments decentralize decision making. The EU is an obvious example, where the highest regional bodies like the European Commission, Council and Parliament make decisions about things like the EU budget, monetary policy and trade; while national and local authorities make final decisions about issues including transportation, education, and public services. 

The blocksize debate opened the curtain on Bitcoin governance

In the early days of blockchain, when Bitcoin and Ethereum were the primary headliners, governance appeared to be decentralized right along with the technology. 

Take Bitcoin: on the surface, Bitcoin governance appears to be fully decentralized. There’s no one you can call if you lose a Bitcoin. Anyone can participate in the network. But the blocksize debate in 2015 made it clear that there were in fact a smaller number of engineers making calls about certain features. 

Ethereum is even more centralized. Decisions are made by its “benevolent dictator,” Vitalik Buterin. In fact this model, where decision structures are decentralized until there is a problem and then the centralized structure becomes apparent, is not unusual. 

But just because a technology is decentralized doesn’t mean that the governance has to be that way too. 

Gradual decentralization is a popular move 

At the enterprise level, often blockchain business networks begin with a more centralized governance structure than they intend to maintain. 

The reason for this is that blockchain continues to exist in a world with infrastructure and constraints that were built for paper based processes. Until the legal structure adjusts and business institutions adapt, decentralized governance will knock up against institutional barriers like data localization requirements or requirements for national certificate authorities. However as the global set of live enterprise blockchain projects increases, so does the number of governance templates offering novel governance forms that push against the frontier of centralized governance.

What this has changed in your life

Governance is a critical part of every application and project. Blockchain applications have the potential to develop a unique governance path. The importance of smoothly functioning governance is clear in many parts of our daily lives. For example:

  • You’re (still) not reading Donald Trump’s Facebook posts. This is because of the governance executed by Facebook’s Oversight Board. It is representative of the new forms of governance we are seeing today. 
  • You have the option to buy Bitcoin or Bitcoin Cash. This split was the result of a dispute that was not able to be solved with the governance mechanisms in place.
  • When you go to a webpage, you can use sitename.com instead of typing in the IP address. This is because ICANN’s decentralized governance works smoothly enough to maintain the system, account for disputes, and allow for new features (like sitename.story) to be released.

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