The Internal and External Governance of Blockchain-Based Organizations: Evidence from Cryptocurrencies

Abstract

We theorize about the governance of blockchain organizations and empirically explore the phenomenon using panel data on cryptocurrencies. Our findings point to interesting effects of governance on returns (i.e. cryptocurrency price increases or decreases). Internally, while centralized governance design choices at the blockchain level decrease returns, centralized governance design choices at the protocol and the organizational levels appear to be more beneficial for returns. The results correspond to the idea that, on the one hand, investors value cryptocurrencies’ core value proposition, rooted in decentralization; but on the other hand, are suspicious of decentralized governance at higher levels in the organization because they could slow down strategic decision-making (e.g., regarding the introduction of new innovations) or create information asymmetries between investors and technologists.

Keywords: bitcoin, governance, blockchain, cryptocurrency, decentralization

JEL Classification: G3, E42