A consortium blockchain network must agree on rules right at the outset. One simple question is ‘Who can decide what, and when?’ A little trickier is the question of ‘How should decisions be made?’ Should decisions be ‘no code’, i.e. using people and committees, or ‘no people’, i.e. using smart contracts? Which data should be visible to whom and how shall we deal with the possible exploitation of this data? What is allowed, what is not allowed, and what do people want? There are many questions and a lot of unknown territory. There’s no point searching for an example of best practice here.
The term ‘governance’ is used in many ways, but not always to mean the same thing. In the context of political control, the term includes the non-hierarchical forms of governance and, in contrast to government per se, implies a form of control designed to coordinate and link together political decision-making levels and stakeholders.
The term has since been transferred to the business environment and often crops up in the context of process and IT control. Here, governance consists of a defined organisational and operational structure that ensures that, for example, process design or changes to IT are aligned with the corporate strategy.
First of all, let us distinguish between the different types of blockchain solutions that companies can use:
The following table shows the main features of the different blockchain types:
We can conclude from this that a private blockchain is controlled by normal IT governance, and that the issue of specific blockchain governance only applies to open and permissioned platforms. The governance of open blockchains is primarily determined by the founders. For example, Satoshi Nakamoto defined the vast majority of the rules that govern ‘his’ Bitcoin. The established governance process follows a defined set of verification rules and ultimately seeks to determine whether a proposed change will convince enough stakeholders so that it will be included in the reference implementation on github.com.
Further details on Bitcoin governance can be found in the following blog post: https://medium.com/@pierre_rochard/bitcoin-governance-37e86299470f
Studying existing open blockchain governance models enables us to recognise that different decision-making processes are used. Archetypically, a distinction can be made between ‘no code’ and ‘no people’. Both forms are based on the principle of adaption, i.e. whether a proposed change is actually installed by the majority of node operators.
A comparison between the different types of blockchain also reveals that the admission-restricted approach provides the largest scope for regulation. In the context of a permissioned blockchain solution used by a consortium business partner network, there remains the question of what exactly it is important to control. There is no best practice here, so we're treading new ground.
To start off, we shall define governance as a set of rules that govern our partnership. These regulations focus on what, who and how.
The governance system should be based on shared values. We agreed on the following:
One of the aims of governance is to establish a foundation of mutual trust, which allows companies to carry out their business processes – palette exchange in this instance – using the blockchain solution. In the case of our project, one essential requirement is that business partners are identifiable, because one partner gives another pallets in the hope of receiving either wood or money in return. This is an essential difference from the open cryptocurrency blockchain solutions, which allow everyone to see the transactions, but the business partner is hidden behind his public key.
In order to ensure the reliability, integrity and transparency of the pallet exchange solution, we need to consider more than just goal-oriented governance issues, such as changes to
Another critical area for us to look at is how to control our ecosystem. However, what does our ecosystem actually look like? We have defined the following stakeholders/roles:
The consortium itself comprises roles 1 to 4. A company is able to assume one or more roles. The company does not, however, need to be a member of the consortium to exchange pallets using the platform.
Our ecosystem will be controlled using the following types of contract:
It is recommended that the consortium be represented by a legal entity; failure to do so will automatically result in the creation of a private partnership (GbR). Alternative options include: a cooperative, an association, a GmbH (limited liability company) or a foundation. Several key factors should be considered when determining the appropriate form, e.g. the period for which the consortium will be formed, dealing with IP, tax and antitrust issues, voting rights, the possibility of expelling members of the consortium in case of breaches and, last but not least, the geographic scope.
In order to secure our proposed operational business partner network from a legal point of view, we have identified a number of topics that need to be defined:
This is an ongoing discussion involving a wide range of different opinions, which is why we are concluding this blog post with an incomplete list. It seems to reflect the fact that we are treading new ground here and encourages us to continue addressing these issues and reach solutions in the New Year.
PwC
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