Blockchain: The birth of Decentralized Governance

• Authors: Benito Arruñada.
• BSE Working Paper: 110511 | April 18
• Keywords: Platforms , Networks , Coordination , blockchain , hold‐up , relational capital , incomplete contracts , decentralized governance
• JEL codes: D23, L12, L22, L86
• Platforms
• Networks
• Coordination
• blockchain
• hold‐up
• relational capital
• incomplete contracts
• decentralized governance

By allowing networks to split, decentralized blockchain platforms protect members against hold up, but hinder coordination, given that adaptation decisions are ultimately decentralized. The current solutions to improve coordination, based on “premining” cryptocoins, taxing members and incentivizing developers, are insufficient. For blockchain to fulfill its promise and outcompete centralized firms, it needs to develop new forms of “soft” decentralized governance (anarchic, aristocratic, democratic, and autocratic) that allow networks to avoid bad equilibria.