Decentralized Network Governance: Blockchain Technology and the Future of Regulation

TLDR

  • Effective governance is essential to protect the interests and needs of actors in the digital domains like blockchain and big data. This has become increasingly important due to the advancement of these technologies over the years.
  • The authors review literature and conclude that dominant modes of governance are inadequate for understanding emerging forms of governance such as DAOs.
  • They propose a new paradigm of governance based on the regulation of new power relationships between the state and actors in the digital domain, and they investigate the role blockchain technology can play in what they term decentralized network governance.

Core Research Question

Do current modes of governance in the digital domain adequately address the advancement of technology with respect to decentralized network governance?

Citation

Zwitter, A., & Hazenberg, J. (2020). Decentralized Network Governance: Blockchain Technology and the Future of Regulation. Frontiers in Blockchain. https://doi.org/10.3389/fbloc.28020.00012

Background

  • Network Theory: The study of complex interacting systems that can be represented as graphs equipped with extra structure. It provides techniques for analyzing interacting agents. In network theory, power is considered as the ability to leverage one’s position with other actors.
  • Decentralized Network Governance: A system of governance where governing tasks are distributed according to capability and exerted power on a fluid basis.
  • Social Network Analysis: The process of investigating social structures through the use of networks and graph theory. It is a process of quantitative and qualitative analysis of a social network. Here, the role and power of actors within a decentralized network are functions dependent on whether actors can influence other actors or whether they can leverage their positions through different forms of intermediaries. In social networks, members of distinct groups share a more tight-knit network among each other.

Summary

  • In today’s world, the operations and interactions of people, businesses, institutions of higher learning, and governmental bodies are progressively being shaped by innovations in the digital space.
  • Technology is leveraged to carry out activities such as creation, collection, dissemination and distribution of information which were once solely carried out through social processes.
  • The purpose of this research is to combine governance literature with social network theory in order to develop a new approach to governance: decentralized network governance.
  • Policy-making is increasingly conceptualized in terms of several forms of governance in the literature on governance. These include self-referential, decentralized, and horizontal systems of governance, as well as Westphalian command-and-control government.
  • Blockchain, DLTs, and artificial intelligence (AI) are all influencing how people interact with one another. The researchers discuss how these emerging technologies are silently imposing governance standards and describe the need to conceptualize a decentralized network governance that will incorporate the imposed sets of rules.
  • The concept of a decentralized autonomous organization (DAO), which includes internal and external governance components, is a significant advancement within blockchain ecosystems.
  • It is evident that networks made up of various public and private entities are increasingly governing interactions and communities.
  • As a result, power is concentrated in huge technology corporations, governmental agencies, and organizations engaging in blockchain technologies since ownership is in the hands of those who develop the means, collect the data, and repurpose the tools.
  • A network theory approach was imbibed in order to comprehend the governance effectuated by digital networks in general and by blockchain technology in particular. Given distributed ledgers and the decentralized nature of blockchain technology, this theory provides a useful concept of societal governance in a networked system.
  • The researchers reviewed the governance literature while the dominant modes of governance were conceptualized.
  • The authors presented the different modes of governance in the digital domain, including Mode 1 and Mode 2 governance. Mode 1 is referred to as the old governance literature, primarily via the hierarchical command-and-control structure of the state and other public hierarchies. Mode 2 refers to the new emergence of more horizontal policy-making modes that create a more level playing field for societal actors, both private and public.
  • To establish a more legitimate and imperative power balance, the digital space needs regulation and governance. Therefore a broad perspective of governance was taken, avoiding bias toward specific modes of governance.
  • The authors propose a novel network approach to governance (Mode 3) that is better suited to the decentralized nature of governance structures that may be found in blockchain solutions, particularly DAOs.

Method

  • The researchers conducted a qualitative study by collecting data from existing literature on governance theory.
  • The decentralized network governance approach intends to dynamically distribute governing tasks based on capacity and exerted authority.
  • The actors within the policy network in the decentralized network engage in a networked structure rather than a hierarchical or horizontal structure.
  • They analyze through the lens of social network theory, providing concrete insights into existing blockchain and DLT applications while focusing specifically on issues of power, identity, and the roles played in rigidly hierarchical and non-hierarchical governance structures.

Results

  • From the perspective of social network theory, decentralized network governance becomes more interesting when compared to the concepts underlying social networks.
  • A network of actors develops into a governance-relevant policy network as a result of their interactions rather than because of their individual prominent positions. It depends on the topic, how they are seen in certain policy circles, and what influence they have over other actors.
  • According to social network analysis, an actor’s position and power within a decentralized network depend on their ability to influence other actors in the network or to take advantage of their positions through various types of brokerage.
  • Traditional, hierarchical governance with fixed identities is described in Mode 1. Mode 2 governs in a more horizontal manner, with set roles based on authority and skill. Mode 3 enables the development of new forms of regulation for digitalized social affairs.

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Discussion and Key Takeaways

  • Decentralized network governance addresses governance challenges caused by blockchain technology in a more effective way.
  • Identities and roles are no longer central to the exertion of power in social coordination. Their place has been taken by new forms of power.
  • Decentralized network governance gives concrete indications of the utility of social network analysis with regard to policy-making and the design of governance tools in the digital domain.

Implications and Follow-ups

  • The need for governance to adapt to the technical innovations of the digital domain and to increase the use of blockchain technology.
  • Future direction should include designing smarter digital networks and assigning roles to actors depending on their centrality and intermediary positions.
  • Social network analysis can provide concrete insights into existing blockchain and DLT applications. This analysis also has the capability to help further develop a theoretical framework regarding decentralized network governance.

Applicability

  • This research applies to policy makers, state agencies, big corporations, organizations and individuals in the emerging technology space.
  • Decentralized governance can equally be applicable to all modern power interactions typified by a majority of private actors who offer communication networks for other private actors.
4 Likes

Welcome back, @Deborah_Oni, and thanks for your substantial contribution to the forum.

I’m curious about the specific challenges that blockchain and DLTs raise that decentralized network governance addresses particularly well. Do you have any opinions or feelings about that?

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Thank you @rlombreglia for your question. I’m glad to be here.

The specific challenges that blockchain and DLTs raise that decentralized network governance addresses particularly well in my opinion are the fact that governance process in blockchain and DLTs are decentered, horizontal and networked. This poses a challenge to the existing governance process which is static, centralized, power is concentrated in one single authority and it is role and identity-based. Applying the existing mode of governance will not be able to cater for the interest of all stakeholders in the digital space and might as a result hinder innovations. Hence the need for a decentralized network governance where power is dynamic and fluid.

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Thanks for your reply, @Deborah_Oni.

In your answer you identified “stakeholders in the digital space,” which leads me to an interesting follow-up question: Does decentralized network governance apply to only the digital domain?

If the answer is “no,” how and where would its application to the non-digital world work?