Download this Paper Open PDF in Browser

Corporate Governance for Complex Cryptocurrencies? A Framework for Stability and Decision Making in Blockchain-Based Organizations

37 Pages Posted: 17 Jul 2017 Last revised: 23 Nov 2017

Philipp Hacker

Humboldt University of Berlin; WZB Berlin Social Science Center

Date Written: November 22, 2017

Abstract

Cryptocurrencies such as bitcoin or ethereum are gaining ground not only as alternative modes of payment, but also as platforms for financial innovation, particularly through token sales (ICOs). All of these ventures are based on decentralized, permissionless blockchain technology whose distinguishing characteristics are their openness to, and the formal equality of, participants. However, recent cryptocurrency crises have shown that these architectures lack robust governance frameworks and are therefore 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 and token-based 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. It applies these insights to three key case studies: the Bitcoin Hard Fork of 2013; the Ethereum hard fork of 2016, following the DAO hack; and the ongoing Bitcoin scaling debate. Second, the paper argues that complexity-induced uncertainty can be reduced, and elements of stability and order strengthened, by adapting a corporate governance framework to blockchain-based organizations: cryptocurrencies, and decentralized applications built on top of them via token sales. 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, however, the coordination of these activities may necessitate the establishment of an “ICANN for blockchains”.

Keywords: blockchain; token sales; ICO; initial coin offering; governance; corporation; bitcoin; ethereum; hard fork; utility token; investment token; complexity theory; ICANN; hard fork

JEL Classification: B50, E40, E42, E47, K00, K11, K12, K20, K22

Suggested Citation

Hacker, Philipp, Corporate Governance for Complex Cryptocurrencies? A Framework for Stability and Decision Making in Blockchain-Based Organizations (November 22, 2017). Available at SSRN: https://ssrn.com/abstract=2998830

Philipp Hacker (Contact Author)

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany
+49 30 2093 3498 (Phone)

HOME PAGE: http://hu-berlin.academia.edu/PhilippHacker

WZB Berlin Social Science Center ( email )

Reichpietschufer 50
D-10785 Berlin, 10785
Germany

Paper statistics

Downloads
374
Rank
68,303
Abstract Views
1,095