Video: “Blockchain governance”

I am delighted to publish a 15-video series dedicated to my book, “Blockchain + Antitrust: The Decentralization formula”. You can access all the chapters over here, and all the video transcripts over here.



In this video, I’d like to explain how we can create a legal fiction around blockchains, or, put differently, how to assign blockchain legal personality. Let me tell you right away: you better stop listening to music or cooking while watching this video; I need you to be focused.

But first, I need to discuss a bit of mathematics/biology/physics. In the early 20th century, the Russian mathematician Andrei Markov developed a theory that will later be called “Markov blanket”. In this theory, he explains that living things exist separately from others because of a blanket. The blanket is what separates us from what… isn’t us. But Markov does not explain what these blankets are. This is where the neuroscientist Karl Friston kicks in. According to him, each living organism resists a tendency to dissolve to align the actual world with its predictions. He calls that the free energy principle.

Now, why am I telling you all that? Well, I believe that principle is key to understanding why blockchain exists. To be very concrete, users, core developers, and miners come together and seek to ensure blockchain survival. And to be even more specific, this is not true of all blockchain participants. Some just want to make money using a blockchain on a given day and will move on a different blockchain the next day. With that in mind, we need to distinguish between blockchain participants that seek survival — those inside the blanket — and the others. We can then assign a legal personality to the first because they are… one. Voilà!

OK, so let’s do that together. For that, we need to understand blockchain governance. And here’s the logic: because blockchains are horizontal, the role of each participant is very important. This is why I call the following analysis the “theory of granularity”. The notion of granularity defines the size of the smallest element in a system. If we want to capture blockchain governance, we cannot afford not to understand each of its elements.

So, what do we see? There are three main categories of blockchain participants. The founders and core developers miners or validators, and users. Let me explore them one by one.

The core developers decide and implement the original rules of a blockchain. They design the software core code and choose which consensus protocol will be used. Now, for most blockchains, including Bitcoin and Ethereum, founders and core developers cannot unilaterally impose any changes to these rules. Of course, they can propose updates — they are generally accepted — but blockchain users and miners could decide to refuse a few. And also, core developers do not control who can use the blockchain at the platform layer or who can build applications on top of it. In a nutshell, they are important “advisors”.

Now, on to blockchain users. If the blockchain is public, anyone can become a user. They exercise substantial power over the blockchain because their decision to use it (or not) is central to the blockchain’s economic and social value. They can also force hard forks on the blockchain, that is, split the chain in two and assign new rules. But their power is limited because they cannot (easily) coordinate.

And last, blockchain miners, or validators. On permissionless public blockchains, miners validate transactions assembled into blocks. Any participant can become a miner. They follow the rule encoded in the blockchain core software, but, if they coordinate, they can force a soft fork, that is, change the rules. That being said, their ability to change these rules is limited by users’ willingness to use the blockchain with new rules.

Once I said all that, what do we see in practice? As a principle, none of the three types of blockchain participants can impose their power on other groups to take complete control over the blockchain. But of course, a group of participants may achieve a form of control over the blockchain by cooperating because it allows these participants to circumvent (some of) the constraints usually imposed on them by others. I call this group of participants the “blockchain nucleus”.

To be clear, the nucleus includes all the participants who have a personal interest in collaborating toward the same long-term goal: to ensure a blockchain’s survival. So, how do you define who’s in it, you probably think to yourself? Here’s the methodology I propose, using three elements:

→ First, the technical ability to exert a horizontal quasi-power of command and control. This implies studying the blockchain architecture regarding who can validate transactions, who can propose changes to the core code, etc.

→ Second, the ability of each participant to interfere with the blockchain’s economic value: this can be the capacity to change the size of each block, raise fees, etc.

→ Third, the ability to influence a blockchain’s norms, meaning the unwritten rules that one often feels compelled to follow. To be practical, this implies for example studying whether core developers’ proposals are always accepted.

These elements make the blockchain nucleus apparent. Take a blockchain of your choice and try it. It works. If we then create a legal fiction around this nucleus, we can suddenly apply antitrust law to it. We can sanction the collusion of two of such legal fictions, but we can also protect blockchain against illegal practices, assess damage to it, and give it the right to institute legal actions. This is a win-win creation. A win for antitrust enforcers and a win for blockchain communities.

That is all for today. Thank you very much for listening. Take care of yourself, and, if you can, someone else too. Cheers.

Thibault Schrepel

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