Talking about blockchain and governance in the same sentence seems contradictory – after all isn’t blockchain supposed to get rid of the need for a central authority? The reality is that governance is perhaps more important than ever in blockchain ecosystems.
For permissionless systems – which are perhaps the protagonists for the removal of a central authority – there are still areas that require a governance mechanism. Firstly, the blockchain standards need some level of governance – for cryptocurrencies this is more straightforward but when we consider other applications the standards play a more important role. Secondly, there are systemic issues that require some governance, even for cryptocurrencies like Bitcoin. What happens if someone takes control of a significant proportion of the consensus nodes? What happens when the future mining value diminishes and the maximum Bitcoins are distributed? Even with Bitcoin there were adjustments proposed to the protocols that needed the Bitcoin community to agree through a voting mechanism.
For permissioned systems the need for governance is more obvious – as a minimum some authority needs to control who is allowed to participate in the system. The authority needs to govern the standards, agree the consensus mechanism, and define how value is distributed between the participants.
The value of blockchain is connecting ecosystems is extremely powerful – there is no doubt that the opportunity to connect ecosystems will create both massive disruption as well as substantial improvements in overall value as we optimise the entire ecosystem rather than just a single organization. Blockchain is an ideal technology to enable this – it creates trust with the consensus mechanism and provides a shared ledger of truth across organizations. Organizations need to embrace these opportunities.
This will be nevertheless be one of the biggest challenges – and perhaps a determinant of future success – organizations that embrace the opportunity of working across their ecosystem will likely share in the future value but need to challenge the very core of their business to adapt to a new way of working. Those that embrace the change are likely to be in a better position to identify ways to create value – whereas those who seek to use their market dominance to protect and control will likely suffer as other market actors seek to collaborate and topple the leaders.
Governance in these new blockchain enabled ecosystems will be challenging – organizations need to understand how they can work collaboratively in their ecosystem while maintaining their unique value-add. Approaching these opportunities with an open mind but clarity on values is critical. Further organizations need to identify low risk and constrained domains to start where they can learn the practices of collaboration and governance that are necessary to drive broader transformation that will emerge quickly for those not embracing the future.
Government has a potential role to play in these ecosystem opportunities – the economic value and impact on growth for a country will be significant – so Government has an obligation to drive the connection across the ecosystems and enable this value to be realized. This is a new and exciting opportunity for Government to create the next level of infrastructure and regulation to support our future digital economy.