35 Pages Posted: 17 Jul 2017
Date Written: July 7, 2017
Cryptocurrencies such as Bitcoin or Ethereum are gaining ground not only as alternative modes of payment, but also as platforms for financial innovation. They are based on decentralized, permissionless blockchain technology whose distinguishing characteristics are their openness for and the formal equality of participants. However, recent cryptocurrency crises have shown that these architectures lack robust governance frameworks and therefore are prone to patterns of re-centralization: they are informally dominated by coalitions of powerful players within the cryptocurrency ecosystem who may violate basic rules of the blockchain community without accountability or sanction.
Against this background, this paper makes two novel contributions. First, it suggests that cryptocurrency ecosystems can be fruitfully analyzed as complex systems that have been studied for decades in complexity theory and that have recently gained prominence in financial regulation, too. Second, it argues that complexity-induced uncertainty can be reduced, and elements of stability and order strengthened, by adapting a corporate governance framework to cryptocurrencies. Most importantly, the resulting “comply or explain” approach combines transparency and accountability with the necessary flexibility that allows cryptocurrency developers to continue to experiment for the sake of innovation. Eventually, the coordination of these activities may necessitate the establishment of an “ICANN for cryptocurrencies”.
Keywords: blockchain; cryptocurrency; governance; corporate governance; hard fork; DAO; complexity theory; financial regulation
JEL Classification: B50, E40, E42, E47, K00, K11, K12, K20, K22
Suggested Citation: Suggested Citation
Hacker, Philipp, Corporate Governance for Complex Cryptocurrencies? A Framework for Stability and Decision Making in Blockchain-Based Monetary Systems (July 7, 2017). Available at SSRN: https://ssrn.com/abstract=2998830