Blockchain as Commons: Applying Ostrom’s Polycentric Approach to Blockchain Governance

Abstract

Given the potential benefits of blockchain, it is imperative to incorporate a stable decentralized governance structure capable of promoting network value and reliability through a set of community-agreed rules and behaviors. Political scientist Elinor Ostrom’s polycentric approach to governance of the commons ensures that the community is at the center of the decision-making process that drives an ecosystem’s network effects and its micro- and macro-economic goals. In our design, we envision community members with an equal right to participate in governance tiers, where each participant has the freedom to choose the level of commitment and reward voluntarily. To implement this framework, we contemplate that governors are organized in different layers. We view Ostrom’s eighth principle of “nested enterprise” as the foundation for such a framework. In the context of a blockchain network, “nested enterprise” refers to building responsibilities among governors in nested tiers (“governance tiers”) from the lowest level up to the entire interconnected systems. In this way, governors are organized in a bottom-up ecosystem and connected by their responsibilities and a common goal of governing the commons. It potentially creates a coherent system where governors’ stakes are proportional to their rewards/ incentives – meaning higher stakes are equal to higher incentives. If implemented, the framework will serve as a key catalyst in developing a long-term value-driven relationship between a blockchain-based network and its governing participants. The application of Ostrom’s design principles in a blockchain governance framework has the potential to increase governors’ responsibilities while ensuring long-term, sustainable and transparent management of a blockchain network’s common resources.