30 April 2019

What happened at the European Union Blockchain Observatory & Forum workshop on Governance and new organisational challenges in Brussels on 30 April, 2019

For many, governance is one of if not the most important topic in blockchain. It is not hard to see why. As a technology of decentralisation, blockchain lends itself to projects that involve multiple actors who desire to come together to collectively build and run a platform of some kind. This is true for blockchain in business contexts, and even more so when building blockchain protocols and large-scale, open platforms. As multiple actors usually mean a wide range of motivations and incentives, governance is necessary to ensure the parties attain their goals in a sustainable way.

How blockchain projects can and should be governed was the topic of our ninth workshop at the Euorpean Union Blockchain Observatory & Forum, which was held in Brussels on 30 April. Below we present some highlights from the discussion.

The great governance challenge

In the introduction to the event, Ludovic Courcelas from the Observatory identified two main types of governance challenges:

Project governance, which comes into effect when you are building something. Questions include: How to distribute liability; who owns the IP; how to set up memberships; how to decide objectives and values; and who makes decisions regarding the product and the technology.

Protocol governance, which is really network governance. Questions include: who runs the nodes; what consensus protocol should be used; what are the permissions for each stakeholder; who can access the network; what’s the process to implement new features.

This set the scene for the opening panel discussion on the subject of the governance of large-scale blockchain-based enterprise solutions. Panelists described different governance models ranging from associations and non-profits to private companies collectively founded by stakeholders. While blockchain can be used for new business models, today most enterprise projects are about efficiency and cost reduction. This provides the main incentive for stakeholders. When it comes to governance on technical decisions, since speed is of the essence, it can pay to be pragmatic, leaving such decisions to the specialists and/or a small group of decision makers. As projects mature, a broader, more decentralised framework for such decisions becomes desirable and more practicable.

Governance options and dispute resolution

Next up was a presentation by Valeria Portale of the Politecnico de Milano on a recent blockchain governance study she and her colleagues had carried out. The researchers, she explained, differentiate between projects building solutions on existing platforms, for example for notarisation, Dapps or exchange of value, and those creating new platforms. For governance, the main issues are whether there is limited or unrestricted a) access to the platform and b) ability to help define the rules. Along these two axes we can further distinguish four main governance models: a) fully centralised governance, b) hybrid governance with centralised access and unrestricted participation in rule-making, c) hybrid governance with unrestricted access but restricted participation in rule-making, d) fully distributed governance with unrestricted access to the platform and unrestricted participation in the rule-making.

Clément Lesage, the CTO of Kleros, then presented his project. Kleros is a blockchain-based dispute resolution platform that connects users who need to solve disputes with jurors who have the skills to fairly settle them. There are different kinds of disputes possible, for example escrow disputes (as might arise when hiring a freelancer), oracle disputes (centered around the veracity of off-chain information necessary to fulfill a contract clause), or curated lists (finding a decentralised means to ensure the validity of list items). There are also different possible dispute resolution systems, for example a centralised arbitrator, a small group of arbiters, a larger, decentralised autonomous organisation (DAO) such as Kleros. An autonomous dispute resolution needs mechanisms for choosing arbitrators fairly and incentivising honesty, among other things. Kleros seeks to achieve this using blockchain, game theory and cryptoeconomics.

Governance also means governing

After lunch, Stefan Junestrand gave a talk on the use of blockchain to support democracy. While citizen participation is clearly important for democracy, we currently see low rates of political participation in elections and a steady reduction of trust in public administration. How can we  potentially use blockchain to improve this situation?

One use case is blockchain-based e-voting. As with other kinds of e-voting, this allows for digital voting on mobile phones. Blockchain however makes it easy to add enhanced features, like the ability to see if a vote has been registered, to rank alternative choices, or to vote conditionally. Recent interesting blockchain-based voting has taken place in the Swiss city of Zug and the US state of West Virginia. Blockchain could also be used to support liquid democracy, which is a hybrid of representative and direct democracy in which voters can vote directly on any issue, but can also delegate their vote to someone else, perhaps someone they feel is more qualified to assess the issue. This delegation can be revoked at any time. There are movements to use liquid democracy principles in representative government in places like Australia and California.

In search of best practice

The day ended with a working session involving all participants present on the subject of governance frameworks and best practices.

One of the first questions that needs to be addressed in a decentralised project is “to decide how to decide”. After that, key elements for governance include legal structure, membership status, authority to make decisions, and a number of organisational questions. This will be different for different layers: governance for the technical layer, governance for the project layer in the pre-production phase (build the platform) and in the post-production phase (run the platform).

There are five possible forms for blockchain projects: a) partnership via memorandum of understanding, b) an association, c) a vendor-provided solutions, d) a partnership via a private entity, or e) a foundation. The question is how to choose what is the best form and what is best practice when employing a specific form. Choice of legal form depends on liability issues to an extent, as well as on desired incentives. In permissioned chains you tend to have a legal entity, so that governance issues can be settled that way. In public, permissionless environments you don’t have this entity, and among other things run the risk that any court can overturn your governance decision.

Workshop details

A detailed report on this workshop, including links to the presentations and the video of the day, will be published in the next few weeks on our Reports page. Be sure to check back if you are interested in this topic!

The Workshop took place in Brussels on 30 April, 2019

There were 90 people registered for the event

Speakers and panelists included:

  • Pēteris Zilgalvis (DG CNECT)
  • Valeria Portale (Researcher, Politecnico de Milano)
  • Thibaud de Maintenant (Liquidshare)
  • Jesus Ruiz (Alastria)
  • Ken Timsit (ConsenSys)
  • Clément Lesaege (Kleros)
  • Stefan Junestrand (Expert and Speaker: Smart Cities, Sustainability & Blockchain)
  • Reto Gadient (Moderator)
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Disclaimer

The EU Blockchain Observatory & Forum is an initiative sponsored by the European Commission, Directorate-General of Communications Networks, Content & Technology. The information and views set out in this platform are those of the author(s) and do not reflect the official opinion of the Commission. The Commission does not guarantee the accuracy of the data included in this platform. Neither the Commission nor any person acting on the Commission’s behalf may be held responsible for the use which may be made of the information contained therein.