Research Summary: A Systematic Literature Review of Blockchain Governance

TLDR

  • The 2016 exploit of The DAO and the Ethereum community’s subsequent decision to fork the Ethereum blockchain demonstrated the importance of blockchain governance.
  • The authors conduct a systematic literature review of 35 primary studies on blockchain governance and the study reveals several major findings: governance can improve the adaptability and upgradability of blockchains, even though the current studies neglect the broader ethical responsibilities as the objectives of blockchain and governance is along with the development process of a blockchain platform, while the ecosystem level governance is missing
  • The review provides a foundation for future research such as mapping stakeholders of a blockchain system and their rights, accountability, and incentives.

Core Research Question

What are some actionable guidelines that academia and practitioners can use throughout the lifecycle of a blockchain, and what are some emerging trends that could support researchers in this area?

Citation

Liu, Yue et al. “A Systematic Literature Review on Blockchain Governance” E⎄print.Iacr.Org, 2021, https://arxiv.org/pdf/2105.05460.pdf

Background

  • Adaptability: An effective governance structure can broaden a blockchain’s potential applications.
  • Blockchain Governance: The structures and processes designed to ensure the development and use of blockchain are compliant with legal regulations and ethical responsibilities.
  • Consensus protocol: a fault-tolerant mechanism used to achieve the necessary agreement on a single value or state of the network among distributed processes or multi-agent systems
  • Decentralized Autonomous Organizations (DAOs): a community that uses automated decision-making processes such as tokenized voting to make decisions involving a public good
  • Decision rights: Decision rights denote the authority, responsibility, and capability of involved individuals in a blockchain that how decisions are made and monitored, and which stakeholders’ interests should be prioritized
  • Distributed Ledger: A database that is consensually shared and synchronized across multiple sites, institutions, or geographies, and accessible by multiple users simultaneously. There is no centralized administrator.
  • Improvement proposal: Created to address unexpected exceptions and changing requirements in an open-source software project. Two well-known examples are the Bitcoin improvement proposal (BIP) and the Ethereum improvement proposal (EIP).
  • Incentives: A motivational factor intended to influence participant behavior, such as rewards for positive behavior and sanctions for negative behavior.
  • Latency: the delay before a transfer of data begins. High transaction latency and low throughputs are crucial challenges to the scalability of blockchain.
  • Off-chain activities: Actions outside the blockchain platform
  • On-chain activities: Are actions within the blockchain platform
  • Permissioned blockchains: A blockchain that requires permission from external authority to participate in. This kind of blockchain system is usually hosted by one or several cooperating organizations.
  • Permissionless blockchains: In contrast to a permissoned blockchain, these have no centralized authority allowing anyone to participate in them and to remain relatively anonymous. Permissionless blockchains aim to provide a free trading market and thus accept unconditional participation. They have a closed relationship to decentralized finance, where blocks are appended by the elected validators (aka. miners) along with the issuance of on-chain tokens as cryptocurrencies.
  • Security: Ensures that the daily operation of blockchain is in a trustworthy manner, protecting on-chain data and digital assets against malicious attacks.
  • Smart Contracts: Executable code built on top of blockchains. They are useful for executing agreements between untrusted parties and promise to be a key enabler of social automation in the 21st century.
  • Testing environment: A software and hardware setup for the testing teams to execute test cases. Testnet and sandbox are two techniques providing separate running programs for testing new codes or functionalities without influencing the actual business activities in blockchain platforms
  • Throughput: Measurement of information delivered in a certain amount of time.
  • Upgradability: Whether or not a blockchain can be upgraded in functionality by adding or replacing blockchain components.
  • Voting: is commonly used as a conflict resolution method to finalize governance decisions, which can be held either on-chain or off-chain. Specifically, node operators and users are the dominant roles in a voting process to support or veto particular on-chain activities e.g., the acceptance of proposals, audit of historical transactions, and the election of particular roles.

Summary

  • The authors provide a systematic literature review to understand the state-of-the-art of blockchain governance and analyze existing governance solutions
  • The systematic literature review focuses on “blockchain governance” where the object being governed is the blockchain itself, instead of “governance through blockchain” in which blockchain acts as the means to facilitate the governance of software systems.
  • The authors identified a set of 35 primary studies on blockchain governance published from 2008 to 2020 which can also be used as a starting point by communities to conduct further research on blockchain governance
  • Using the 5W1H (what, why, where, when, who, how) method, the authors developed research questions and motivations to critically examine the adoption, use, and design of blockchain governance.
  • What is blockchain governance? Blockchain governance refers to the structures and processes that are designed to ensure that the development and use of blockchain are compliant with legal regulations and ethical responsibilities. The motivation for asking this question is to observe how primary studies define the concept of blockchain governance
  • Why is blockchain governance adopted? Blockchain governance is adopted to improve the adaptability and upgradability of a blockchain. The motivation for this question is to understand the challenges that blockchain governance aims to address.
  • Where is blockchain governance enforced? Blockchain governance can be enforced on data, platform, application and community. The motive for asking this question is to distinguish the key governance objects in the blockchain ecosystem.
  • When is blockchain governance applied? Blockchain governance can be applied at any phase of the lifecycle of a blockchain, which is the Planning, Analysis, Design, Implementation, Testing, Operations, and Termination phase. The motivation for this question is understand the entire process of blockchain governance.
  • Who is involved in Blockchain Governance? The current actor configuration of blockchain governance consists of project team, the node operators, the users, the application providers, the regulators, the media, researchers, and environmentalists. The motivation for this question is to identify the different roles and their authorities, capabilities, and responsibilities in blockchain governance.
  • How is blockchain governance designed? Blockchain governance is designed with the help of the process mechanisms (such as improvement proposals, institutional oversights, and testing environment) and the product mechanisms (voting, forking, consensus protocol, incentive mechanism, platform modularization, participation permission, and transaction filter). The motivation for the following question is to explore actionable mechanisms for implementing blockchain governance.

Method

  • The authors query a selection of primary studies by keywords (“blockchain” OR “Distributed Ledger Technology” OR “DLT”) and (“Governance” OR “Govern” OR “Governing”) and the collected papers were filtered through an inclusion/exclusion criteria to determine the eligibility of the papers
  • Research Questions were developed and the authors read and scanned through the papers to identify the answers to their research questions.

Results

  • From the method listed above, the authors developed the answers to the 5W1H, which aided in the in-depth systematic literature review of blockchain governance.
  • What is blockchain governance?
    • The authors found that some of the primary studies adopt theories of governance from other domains like IT governance, corporate governance, complex adaptive systems, and formal political economy
    • After the extraction of information from the primary studies, the authors defined blockchain governance as “the structures and processes that are designed to ensure the development and use of blockchain are compliant to legal regulations and ethical responsibilities” where structures represent the architectural design of a blockchain and processes represent the overall development processes.
  • Why is blockchain governance adopted?
    • The authors classified the answer into seven categories: adaptability, upgradability, security, fairness, accountability, privacy, and censorship-resistance.
    • Adaptability and upgradability are the two main properties motivating the governance of blockchain whereas the rest are related to ethical values that reflect the awareness of the impact of blockchain on humans and society.
  • Where is blockchain governance enforced?
    • Blockchain governance is concerned with four types of objects to which its rules can be applied: data, platform, application, and community
    • The majority of the primary studies of blockchain governance focused on the design of the platform and the organization of community activities.
  • When is blockchain governance applied?
    • The lifecycle of blockchain application include planning, analysis, design, implementation, testing, operation, and termination.
    • Blockchain governance is applied in the planning phase when the founding members make institutional arrangements such as the initial distribution of decision rights.
    • Blockchain governance is applied in the analysis phase when the actors finalizes governance decisions by voting
    • In the design phase, specific on-chain rules are arranged. For instance, various incentive mechanisms are integrated here to help align the different interests of actors.
    • In the operation phase, governance is applied when human interventions are required to deal with emergencies like violations to laws or disputes between different entities.
  • Who is involved in blockchain governance?
    • From the primary studies, the stakeholders involved in blockchain governance include the project team, the node operator, the users, the application provider, the regulator, and the indirect stakeholders.
  • How is blockchain governance designed?
    • Within the larger governance mechanism, we can distinguish two complementary mechanisms: the process mechanism and the product mechanism. The process mechanism describes the blockchain development steps via the governance meta-rules whereas the product mechanism includes the features of a blockchain as the final outcomes of the software development process
    • The process mechanism encompasses the improvement proposal, the institutional oversights, and the testing environment
    • The product mechanisms include voting, forking, consensus protocol, incentive mechanism, platform modularization, and participation permission

Discussion and Key Takeaways

  • From the systematic literature review of blockchain governance, the authors demonstrate that the main goals of blockchain governance are adaptability and upgradability of the blockchain they represent.
  • Common governance mechanisms like improvement protocols, voting, and forking can be used to upgrade a blockchain platform whereas the design and operation of a consensus protocol and/or incentive mechanism can be used to regulate the behavior of stakeholders.
  • There is need for collaboration between researchers who analyze the regulations issued by different countries and blockchain project teams who codify the rules into blockchain platforms.

Implications and Follow-ups

  • The systematic literature review explored what blockchain governance is and how a governance mechanism affects the success of governance but neglects broader ethical responsibilities as objectives of blockchain governance.
  • Studies in this paper were largely conceptual, rather descriptive and lacked practical industry application. The systematic literature review demonstrates a need for critical study and testing to find applicable use cases, solving real-world problems, and addressing governance issues in blockchains.
  • There is a need for the continous research on blockchain governance as billions of dollars have entered the ecosystem and the speed of blockchain development is accelerating.
  • The authors present research areas for follow-up work. How can operaters ensure that a blockchain ecosystem is compliant to legal regulations and ethical responsibilities? How can you develop blockchains as responsible technology, by preserving human values, via proper governance? What decision rights are allocated to different stakeholders? And how w do you ensure they are accountable? How are they incentivised?

Applicability

  • The systematic literature review of blockchain governance explores scholarly and industrial research on what blockchain governance is, and how blockchain governance should be structured. From these conclusions, actors participating in blockchains can improve on existing governance frameworks or even create new, well-defined frameworks for blockchain design and use.
  • The paper identifies existing best practices and proposes new best practices for guiding the process of blockchain governance.
  • The paper also provides a research agenda for future study of blockchain governance. For instance, refining the lifecycle of different governance objects, studying the mapping between stakeholders and their decision rights, accountability, and incentives while also analyzing the legal regulations and ethical responsibilities.
4 Likes

I always find literature reviews valuable, so thank you for posting this summary.

The posting of this coincides with a conversation that was happening in the SCRF community chat earlier today, so I can’t help but focus on this element of the summary as a starting spot for discussion.

This quote and our conversations about your summary really stuck with me that the assumption seems to be that governance of blockchain is to help prevent the potential downsides of the immutability of a blockchain. There seems to be another side of this also though. @Sami_B brought the Metric Circle governance vote to the attention of chat, and @rlombreglia shared the news item from CoinDesk where community governance altered what we might consider a traditional contractual agreement. In this instances, perhaps an immutable smart contract would have been better?

Obviously this is just anecdotal. From the literature review, we can pull together a lot more than just anecdotes. But as you pointed out, “the studies in this paper were largely conceptual.” Do you think that is a barrier for some of the conclusions that are being reached in this literature review that would disconnect the findings to real-life situations like what happened at Metric Circle?

2 Likes