Blockchain Governance and the Concept of Organized Anarchies

Decentralization and distributed authority are core values for the blockchain community. And the governance regimes that have evolved alongside public blockchains tend to reflect these values. That is, the decision-making processes of public blockchains tend to be characterized by decentralized participation and loosely defined procedural rules.

Yet, there is evidence that some blockchain governance structures have become much more centralized than what was originally expected.

What causes this tendency to lean towards centralization?

Organized Anarchies

Anarchies, an extreme form of democracy, are characterized by the absence of rules and the absolute freedom of the individual. Nonetheless, while anarchies may lack rules and centralized authority, this does not mean that anarchies lack structure. Informal structures and processes grow and evolve in the absence of formal rules.

There is a strong overlap between the governance systems of some public blockchains and what organizational scholars describe as an “organized anarchy.”

Organized anarchies — first examined by Cohen, March, and Olsen in A Garbage Can Model of Organizational Choice (1972) — are characterized by three general properties.

• First, organized anarchies have members with ill-defined preferences. That is, there are no clear goals that are consistent across all members.
• Second, there tends to be fluid participation in decision-making processes — participants vary in the amount of time and effort they devote to problem-solving. As a result, the boundaries of the groups and organizations within the ecosystem are uncertain and changing.
• Third, decision-making and other organizational processes tend to be ambiguous or unclear in organized anarchies.

A fundamental paradox of organized anarchies is that their decentralized, informal structures can work against the processes of direct democracy and instead can create an environment susceptible to control by a small number of individuals. Peters (2002) describes how the loose structuring and seemingly participatory nature of organized anarchies can hide the exercise of power and the ability of a limited number of actors to shape outcomes. Formal rules, and especially constitutional rules, are mechanisms for ensuring access and protecting minority rights in the decision-making process. Subsequently, the absence of legal frameworks within organized anarchies serves as a source of advantage for more powerful actors. When formal rules are de-emphasized in favor of negotiation, networking, and bargaining, the most influential actors tend to be the ones who are the most effective in these activities.

Within organized anarchies, there is a tendency for a small set of policy entrepreneurs to become the principal actors guiding collective action. These policy entrepreneurs are individuals who possess the argumentative fortitude, technical acumen, and political skills to gain consensus. That is, they are the ones that are able to piece together an informal decision-making process in lieu of a more formal set of constitutional or governance rules.

“In a world replete with ambiguity, the most important aspect of entrepreneurial activity is not to pursue self-interest, but to clarify or create meaning for those policy makers, and others, who have problematic preferences” (Zahariadis, 2007).

In organized anarchies, decision-making is often decoupled from the details of the problem under consideration and is instead driven by negotiation, networking, and bargaining. Cohen et al., (1972) argue that decision-making in organized anarchies is rarely the result of utility maximization. It is more likely that decision outcomes will depend upon who is paying attention and what their immediate concerns are.

We see evidence of this decoupling of decision-making from problem-solving in some decisions surrounding blockchain platform changes. In many cases, the complexity and interconnectedness of blockchain technology make rational, search-based decisions untenable for most people. Thus, while technical discussions may serve as a foundation for debate, ultimately blockchain decision-making may be better understood by examining how policy entrepreneurs present the problem.

What problem attributes do these policy entrepreneurs emphasize?

What failures of the current system do they elevate?

The off-chain decision-making processes surrounding Bitcoin scalability serve as a good case study. Scalability of the Bitcoin blockchain is a complex problem where different proposed enhancements expose a web of interconnected economic and technical issues. It is impossible for the average coin holder to learn and understand enough to make a reasoned decision. As such, it would be difficult to argue that the 2017 Bitcoin fork decision was the result of a utility-maximizing decision following a comprehensive search among alternatives. Instead, evidence points to a coalition-building process wherein participants who were engaged in the scaling debate coalesced into different camps led by distinct personalities.

Blockchain Theory Building

A principal problem under examination by the blockchain community is how different governance regimes affect behavior and decision-making in blockchain ecosystems. As they evolve, blockchain platforms require some level of coordination to support decision-making and change management. A governance perspective on coordination activities is useful when decision-making requirements for a blockchain ecosystem reach beyond a single organizational boundary. The assumption of governance is that different configurations of resources, rules, priorities, processes and values lead to different decision outcomes that, in turn, influence the structure and performance of the ecosystem.

Developing a theory of blockchain decision-making requires an examination of how on-chain and off-chain processes and rules affect the evolution of formal and informal governance structures. The goal is to develop a lens for examining the different ways governance can be supplied in an environment that is less clearly governed through authority and hierarchy.

Final Thoughts

This article examined some of the forces at work on public blockchain platforms with governance structures resembling organized anarchy. Specifically, it looked at the informal processes that have taken shape in lieu of formalized decision-making rules. The early assumption was that the unstructured decision-making processes of public blockchains were more democratic than other, more formalized, blockchain governance regimes.

The organized anarchy perspective suggests some of the unintended consequences that might be expected in organized anarchies. Past scholarship suggests that powerful individuals tend to exert a high level of influence in highly unstructured environments. These policy entrepreneurs exert their influence through some combination of coalition building, problem definition, and social skills. Ultimately, this suggests that we may be able to learn quite a bit about how blockchains evolve by observing the practices of these policy entrepreneurs.

Also published here.

References

• Cohen, M. D., March, J. G., & Olsen, J. P. (1972). A garbage can model of organizational choice. Administrative Science Quarterly, 17(1), 1–25.
• Lynn, L. E., Heinrich, C. J., & Hill, C. J. (2000). Studying Governance and Public Management: Challenges and Prospects. Journal of Public Administration Research and Theory, 10(2), 233–261.
• Mintrom, M., & Norman, P. (2009). Policy Entrepreneurship and Policy Change. Policy Studies Journal, 37(4), 649–667. https://doi.org/10.1111/j.1541-0072.2009.00329.x
• Peters, B. G. (2002). Governance: A Garbage Can Perspective. Vienna, Austria.
• Zahariadis, N. (2007). The multiple streams framework: Structure, limitations, prospects. In P. A. Sabatier (Ed.), Theories of the Policy Process (pp. 65–92). Boulder, CO: Westview Press.