The Political Economy of Blockchain Governance

45 Pages Posted: 24 Feb 2020

See all articles by Barton E. Lee

Barton E. Lee

UNSW, Australia

Daniel J. Moroz

Harvard University

David C. Parkes

Harvard University - Division of Engineering and Applied Sciences

Date Written: February 8, 2020

Abstract

We develop a theory of blockchain governance using tools from formal political theory. The software underlying blockchain projects is frequently updated (forked) to implement new policies, and these forks are the subject of our inquiry. We investigate the ways in which the decentralized governance structure and preferences of users influence which policies are implemented, considering network effects as well as user preferences for different policies. We describe several types of forks and identify the strategic conditions necessary for each. We show that network-effects can motivate less moderate policy proposals, and highlight the role of market frictions created by cryptocurrency exchanges in promoting non-contentious forks that are adopted by all users. The model explains counter-intuitive phenomena that have been observed in the governance of blockchain systems.

Keywords: blockchain, governance, forking, political processes, network effects

JEL Classification: D72, D73, D85

Suggested Citation

Lee, Barton E. and Moroz, Daniel J. and Parkes, David C., The Political Economy of Blockchain Governance (February 8, 2020). Available at SSRN: https://ssrn.com/abstract=3537314 or http://dx.doi.org/10.2139/ssrn.3537314

Barton E. Lee (Contact Author)

UNSW, Australia ( email )

High Street
Sydney, NSW 2052
Australia

HOME PAGE: http://www.bartonelee.com

Daniel J. Moroz

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

David C. Parkes

Harvard University - Division of Engineering and Applied Sciences ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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