Open-Source or Open-Slather? Governing Blockchain Applications as Common-Pool Resources

Abstract

In the paper, we extend the constitutional catallaxy view of governance on distributed knowledge system (DKS) by including human decision-making concerning ownership and governance of distributed ledger systems (DLS). This allows us to distinguish between institutions that are separate and distinct from ownership and control of the digital elements of the system. We propose that DLS are a specific form of common-pool resource or club good, depending upon whether the DLS is (respectively) permissionless (i.e. anyone or any entity can participate at any level of the institution) or permissioned (i.e. specific criteria must be met to participate in particular areas of institutional decision-making).

Using a polycentric analytic approach and positivist case studies, we conclude that despite promises of decentralised governance of DLS, effective control will be held by a small number of powerful centralised stakeholders determining system software content. Typical DLS end-users exert no greater governance control than customers exercise over the firms they do business with, or the beneficiaries of charities exercise over the trustees. However, permissioned systems with associated formalised governance arrangements typically confer greater decision-making power on node operators than permissionless systems, where higher costs of successful forking increase the larger is the number of nodes, making changes to software-encoded governance rules less likely to occur, even when this may be in end-users’ interests.

Keywords: blockchain, distributed ledger, polycentric governance, club governance, distributed consensus

JEL Classification: L14, L29, L30, L86