Blockchain's Embedded Centralities, Risks, and Implications: Applying Ostrom's Commons Approach to Solve Blockchain's Governance Dilemma

Sangita Gazi (Yale Law School)


The recent period of instabilities and several bankruptcies in the cryptocurrency market, often referred to as the 'crypto winter,' underscores the vulnerability of the current blockchain governance systems to centralization risks. It reveals that blockchain's embedded centralities in the operation and governance process can trigger cascading negative effects, leading to the depletion of valuable resources held by network participants. Under the current framework, the centralized authority usually has the unilateral power to shut down the network, restraining millions of customers from accessing their funds. The 'crypto winter' serves as a stark reminder to reexamine the foundational value proposition of blockchain technology, focusing on both its original promises and achievements to date. This academic paper posits that the intrinsic value of blockchain technology lies in its decentralized governance mechanism, which empowers various decentralized actors and aligns with the original vision of the technology. The decentralized governance model is intimately tied to the economic value blockchain networks generate. Leveraging its trustless nature and commitment to eliminating intermediaries in everyday transactions, a decentralized governance structure enables blockchain technology to fulfill its potential by fostering an alternative decentralized economy rooted in user trust and confidence. This approach contributes to the long-term sustainability and growth of the blockchain network.In this context, the paper critically assesses the concept of decentralization and its implications within the operational and governance framework of blockchain technology. Drawing upon Elinor Ostrom's theories on commons, the paper argues that blockchain protocols are susceptible to a 'social dilemma,' primarily stemming from inherent centralization tendencies in their operational and decision-making structures. To mitigate the potential tragedy of the commons, blockchain networks can adopt a polycentric governance approach, which involves the distribution of governance responsibilities across multiple centers, thereby addressing the governance challenges arising from centralization tendencies in both operation and decision-making structures.

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