Understanding governance in business networks powered by blockchain

Governance can be defined as the centralized or decentralized body whose sole responsibility is establishing a set of rules or laws in a given system to make binding decisions. Governance in blockchain networks comes with a set of challenges and, in this section, we want to discuss those challenges along with governance structures in blockchain networks. Within the context of blockchain, the topic of governance presents an interesting paradox.

When a blockchain network is created, the governance structure is generally distributed, with input from the various stakeholders. Blockchain networks are characterized by decentralization and self-governance, with built-in control points and incentives to help maintain the right balance. Transactions go through a series of decentralized processing steps, with a decision that offers transaction finality as the output. This governance structure is based on incentive economics and consensus.

Blockchain began with largely permissionless networks (for example, crypo-asset-based networks such as bitcoin, litecoin, and so on) that relied on technology-based systemic governance through incentives and coordination. This kind of systemic governance poses several challenges in the business world when it attempts to apply the tenets of blockchain. The enterprise world is highly regulated and therefore relies on permissioned blockchain models with checks and balances; this can become rather complicated given the various data regulations, fiduciary responsibilities, and the potential conflicts of interest among competing entities that are transacting together. There can't necessarily be the same kinds of incentives or coordination, due to confidentiality and privacy concerns.

The enterprise focus has often been on understanding blockchain technology and its potential impacts on business. Governance has now become an interesting emerging discipline in the enterprise blockchain world—and an important one. As you can see from the discussion of blockchain business models, there's a range of possible governance structures, from full decentralization and quasi-decentralization to fully centralized blockchain networks. The governance structure actually determines many other aspects of the blockchain adoption, from design to operations to the growth model. Business models and governance structures are close-knit and mutually dependent; both direct various facets of how a blockchain network operates.