Blockchain has seen tremendous interest from businesses across the globe. This has boosted the funding for research, pilot projects and a continued push to new implementations across various industries. We are seeing increased collaborations among the competitors in respective industries in the form of consortiums to jointly explore and expand the possibilities offered by the technology. Many of these initiatives continue to grow in the form of projects like Hyperledger, Corda and many others.
Governance describes the rules, processes, and procedures whereby an organization or the ecosystem in which the organization functions are controlled. Traditional governance models won’t work in a blockchain-based ecosystem because it’s not merely a technology disruption but instead, one that operates at the core operating model of the business. The role of intermediaries will change, critical infrastructure service providers will be different, pricing will get driven by parameters such as platform users, and traditional revenue streams will evolve to include, for example, cryptoeconomics – some of the manifold changes increased blockchain adoption will bring.
Businesses should focus their efforts and energy on evolving the governance model to something that can help them transition to blockchain-based ecosystems. In my view, these are some of the areas that need to be addressed:
- Accountability – Collaborative models will see shared or diluted accountability of critical infrastructure, to some extent considering open source initiatives. However, as this critical infrastructure approaches the production stage, clear accountability, where a neutral party manages this infrastructure, must be established. There are many blockchain service providers in the market precisely to provide and maintain this critical infrastructure. However, there is a continuous risk of off-chain capabilities managed by one party being added to the blockchain that will create monopolies and kill the competition.
- Incentives – An area of particular concern for any business moving from a cooperative to a competitive model is user base. During a transition, the user base tends to move to stronger or more credible players. Businesses need to incentivize the user base while offering competitive capabilities. These incentives can be in the form of cryptos or additional rights, for example, voting. However, it is important to remember that depending on the incentives offered, governance boundaries will significantly expand. Incentives such as cryptos can add complexity to governance, with additional regulations, taxations, and management responsibilities pouring in. However, winning a user base without incentives is even more difficult.
- Innovation – Blockchain is a fairly new technology. I believe that in the next 10–15 years, we will be living in a completely different world. Many of the large businesses we know today will disappear and new ones that provide a very different approach will replace them. Businesses that focus on innovation and have the capability to learn by evolving their operating models and revenue streams will create a competitive edge; one that will last for some time, as a similar level of disruption may not come that soon.
In summary, governance in blockchain-based ecosystems can significantly influence the success or failure of a business. This area is not yet mature and thus poses some real challenges and risks for businesses looking to adopt blockchain networks. However, there are specific aspects such as accountability, incentives, core operating models, and a few others that require a completely new approach. As they transition, businesses need to look at this critical governance requirement and find a model that allows them to successfully transition from a collaborative model to a competitive model. Those who fail to get this right will find it difficult to compete and remain credible to their changing customer base.
It’s time for businesses to take decentralized economy seriously and prepare themselves for inevitable change coming our way!