Bitcoin decentralized network

Cryptocurrency Networks: A New P2P Paradigm

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Authority is not necessarily acquired by identity but rather through performance, knowledge, and expertise. Public—private partnerships, policy networks, and private governance all reflect the nature of a world in which the state is arguably no longer the central governing authority Rhodes, ; Van Kersbergen and Van Waarden, Examples of Mode 2 governance are diverse, but include public—private partnerships working toward the achievement of policy goals that private sector agents are trying to realize more effectively and efficiently through self-regulation. Other examples of areas where Mode 2 governance mechanisms apply are soft law, negotiation, compromise, competition, codes of conduct, and other corporate sectoral agreements on standards of production or quality.

As such, Mode 2 governance changes the roles and power relationships of and between actors involved in policy-making or subject to these policies.

6. The Bitcoin Network - Mastering Bitcoin [Book]

While not being necessarily unified, different forms of Mode 2 governance are role-based in the distribution of governance tasks, as opposed to identity-based. Figure 2.

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The role they can play therefore becomes the relevant aspect of power, and the power relationships become the relevant focus of governance. Oversight is performed by non-majoritarian institutions such as central banks that guard the boundaries set by the state.

Policy goals and corresponding benchmarks become prominent tools in steering policy-making in specific directions. For instance, a public institution sets goals in a specific policy domain and delegates the achievement thereof to private or corporate actors. These actors are perceived as being more capable of efficiently and expertly delivering the desired goal in this domain.

In other domains, the roles of the same private and corporate actors might be completely different. This explains why Mode 2 is not identity but role-based, as the examples below illustrate:. It should be noted that the distinction between Modes 1 and 2 governance is not always clear in practice.

Many hybrid forms exist that borrow elements from both modes. The most prominent is multi-level governance, predominantly employed to describe policy-making within the European Union. It relies on both Mode 1, i. Mode 1 governance is increasingly dismantled at the level of the state, while simultaneously reconstructed at the regional and international level in combination with Mode 2 governance Van Kersbergen and Van Waarden, With a view to Mode 2 governance, one can see that actors who are frequently engaged in the field of blockchain and DLT take on a variety of different roles.

An interesting case that illustrates this is the call for regulation of initial coin offerings ICOs and similar crypto-securities. They are issued by a token provider and registered on the blockchain as a source of income for their projects. In the last few years, such ICOs have come under increasing public scrutiny as concerning their role as financial securities under US and EU regulations. There have also been frequent fraudulent uses of ICOs, and these have become a contested issue in policy and academic debates Hacker and Thomale, In terms of our typology, this shifted the debate around ICOs from being an unregulated space into the realm of Mode 2 governance, with governance ranging from moderate self-regulation to non-autonomous self-governance.

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It remains to be seen whether states deem it necessary to enforce governance in the field of crypto-securities, even by means of Mode 1 governance. It is not surprising that the digital domain, and especially blockchain technology, cannot be effectively governed through either mode of governance. This is firstly because the emergent new roles and power relationships in the digital domain are neither hierarchical nor horizontal. Instead, they are fluid, with different roles and power relationships often residing in a single, anonymous, actor.

Secondly, blockchain technology enables trustlessness, whereas trust is fundamental to the functioning of both Mode 1 and 2 governance. This section will address the first consequence briefly, before providing the stepping stones for the conceptualization of decentralized network governance Mode 3. Modes of governance rely on conceptions of the relevant aspects of power relationships to be governed. In relation to the digital domain and blockchain in particular, power must be conceptualized as fluid, as different actors perform different governance roles within different contexts.

Also, there are times when the networks through which roles are distributed operate as governance actors themselves. As identities and roles are no longer central to the exertion of power in social coordination, their place has been taken by new forms of power and hence require new forms of governance. We can see that these relate closely to the digital domain and blockchain technology Castells, 3 :. This power pertains to the ability to include and exclude others, and thereby controls the makeup of the network.

This primarily concerns the imposition of rules within a network. This power mimics traditional conceptions of power but the way in which it is exerted differs per network. The employment of traditional modes of governance threatens to undermine the benefits of technological innovations such as blockchain and DLT. In particular, overregulation or the application of inadequate mechanisms often reduces the potential benefits of digital technologies. Consequently, this might produce more negative outcomes than positive ones, seeing as a mismatch between regulations and intended governance norms of technological solutions could produce the appearance of regulation without actually having adequate substance.

Alternatively, overregulation might be obsolete when trust is not an issue, as is the case with blockchain-enforced governance. The hierarchical governance of big data actors and states can either miss their targets, because the digital realm is not necessarily confined to territories, or tamper with innovations that might benefit societies. Single actor solutions should therefore be rejected.

Mode 2 governance can undermine the potential benefits of blockchain-based governance as its distribution of governance responsibilities cannot, as we have seen, be readily applied to governance structures established by blockchain technology. The integration of actors into governance mechanisms, based on their ability to achieve policy outcomes, runs the risk of privatizing oversight into the hands of those with the most power. We propose a novel network approach to governance that is more tailored to the decentralized nature of governance structures, and which can generally be found in blockchain solutions and DAOs more specifically.

Our approach of decentralized network governance seeks to distribute governing tasks according to capability and exerted power, on a fluid basis. This implies that governance tasks are distributed neither on the basis of the identity of actors nor on the basis of the role they can perform in the governance process. Given that different actors perform multiple roles within blockchain structures, often simultaneously, the relational nature of power is fundamental in this conception of governance.

Within a governance network, a relational conception of power necessitates fluidity in governance tasks. The distribution of power becomes variable and dynamic dependent on the specific relation between two or more actors see Figure 3.

Introduction

Figure 3. Within the digital domain, and more specifically the domain of digital network providers, the state has limited powers and new actors emerge. These new actors command others through network-making and networked power, in a multitude of continuously changing relationships. Individual ownership of governance is limited. Governance over and within this network is thereby differentiated.

Within decentralized network governance, roles vary according to the nature of the network and the relations within it. This requires that the distribution of governance tasks, rights, and obligations are sensitive to relationships of power between actors. Governance mechanisms must be flexible.

Moreover, as new aspects of power relationships become relevant in blockchain-based solutions, such as those concerning server providers, miners, etc.

Decentralized Network Governance: Blockchain Technology and the Future of Regulation

Whereas traditional modes of governance assume that power resides in identities or roles, decentralized network governance perceives power as residing in specific and changing relationships. Power can thus reside in every actor from individuals, corporations, or the state, depending on the relationship between these actors requiring governance. In different roles and relationships, multiple actors can possess each of the novel network powers.

Regarding the concept of fluid power , and differing from other governance modes where roles are defined a priori , Mode 3 governance tacitly implies power through being an actor in a networked environment. This form power is a function of connectivity. In social network analysis, this kind of power is referred to as centrality of an actor in the network.

Power in the form of connections allows actors to define their own role by choosing alliances dependent on the issues that are at stake. The example of voting behavior regarding finding consensus around hard forks is a case in point. By choosing alliances, networked actors assume governance functions within the network. In order to illustrate this, we can take DAOs as an example. To qualify as a DAO, organizational governance on the blockchain needs to implement voting rights that determine the autonomous execution of smart contracts when certain conditions have been met, e.

The organization and its open-source code are fully transparent and therefore incorruptible. Any actor in the blockchain can submit a proposal that will be automatically executed if the consensus mechanism is triggered by the actors in the blockchain network. This ensures that all actors are voters and proposal-submitters at the same time: a clear case for networked power. DuPont elaborates on this as follows:.

Immediately, Slock. It is at precisely this point that we see the vision of future governance structures break down, and devolve into traditional models of sociality — using existing strong ties to negotiate and influence, argue and disagree — all with nary a line of code in sight. While DuPont describes The DAO experiment ultimately as a failure, it does illustrate our perspective on decentralized network governance. Actors on different levels of the blockchain solution were able to exert different governance roles successfully. In its ideal form, blockchain can resemble a liberal notion of a positivist legal order.

In times of crises, as the DAO hack certainly represents, governance structures resorting to off-chain solutions might more closely resemble political governance outside of the legal order that the blockchain itself represents Reijers et al.

However, the off-chain solution is also a governance structure that is based on the design of the blockchain and thus represents a meta-governance structure. In the example of The DAO, as well as in other cases of consensus-finding for a hard fork, actors decide on changing the rules on a meso-level, i. On a meta-level, namely, the technological infrastructure, the possibility of this decision to hard-fork is implied by the design of the blockchain technology. Were the technology designed in a way that would preclude the option of a hard fork, stakeholders would not even be able to contemplate the hard fork as an option.

This is also an example of how technology tacitly imposes norms of governance, and how on-chain and off-chain governance are entangled together. It also shows that governance mechanisms of DLT are design features rather than sine qua non-conditions. Therefore, as illustrated above, off-chain mechanisms that distribute tasks and obligations are typical for this sort of governance imposed by digital networks.

This characteristic is independent of the identity of an actor. But it depends on the specific type of power of an actor and its role in a specific policy domain. The two most crucial new forms of power are the power to constitute and reprogram networks network-making power and the power to connect and ensure cooperation within networks networked power Castells, These two powers are exerted by new private actors within the digital domain of blockchain-based solutions.

Since the crucial elements of network power reside with private corporate actors, it is important to integrate third parties into the theoretical model of decentralized network governance. For instance, governance roles on the blockchain on-chain governance or outside and around a blockchain solution off-chain governance , can be performed by a myriad of different actors. These take on a specific role in concrete situations.

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