#ebbfgovernance speaker Kurt Specht on Governance in blockchain enabled organizations

Kurt Specht is one of the over 20 speakers at ebbf’s annual international event who will be offering one of a variety of angles and new ideas on the theme of the event: Rethinking Governance ( more info on the event here ) In this article Kurt introduces the theme of his session:

Governance in blockchain enabled organizations

“Distributed Autonomous Organizations, Token Economies and other new type of and communities are based on an emerging technology called the blockchain. Most people know the word blockchain from its most prominent example – Bitcoin – a so-called digital cryptocurrency that recently got quite some attention in the news and media. This popularity is due to two main factors: a) its astronomic increase in value (some of it related to speculation – for example, when exchanged in USD the Bitcoin value is up from a few cents at inception to >$10’000 today) and b) the energy consumption per transaction as the network grows. Currently one Bitcoin transaction requires 240 KWh(1), which is roughly equal to the monthly electricity consumption of a two-person household in Switzerland and sixty times that of a credit card payment.

The Bitcoin and other cryptocurrencies have pitfalls as currencies such as their exposure to speculation (same issue that exists with traditional currencies as well), the limitation of the money supply, and the footprint on the environment. The latter is addressed by various projects and developer communities that aim at improving interoperability, scalability and sustainability issues. They are eager to find solutions to these problems making the blockchain a future-proof information technology(2).

However, Bitcoin and its imitators seem to respond to a societal need of freedom from surveillance and control as they can bypass regulations and government authorities. What is the social value to society of Bitcoin and other cryptocurrencies in their current characteristics and implementation?

Read More …

Cryptocurrencies are a specific implementation of the blockchain technology but they are by far not the only application. So what exactly is a blockchain?

As the name indicates, a blockchain is a chain of blocks that contains information. The technology dates back to around 1991 when a group of researchers was looking for a way to timestamp digital documents to avoid backdating or tampering with the files. It was though vastly ignored until it was adapted by “Satoshi Nakamoto”(3) in 2009 to create the digital cryptocurrency Bitcoin.

To put it very simple a blockchain is an immutable(4), encrypted (secure), chronological and transparent(5) ledger. It not only is decentralized but distributed running on a network of independent computers that makes it resistant to attacks (threat of bringing the entire network down) or corruption (tamper with approved blocks in the chain – data breach). A blockchain is a set of protocols and cryptographic(6) methods that enable a network of computers to work together to securely record data within a shared open database. Its main characteristic is that once some data has been recorded inside a block it becomes virtually impossible to change it.

This is why it is so well suited for cryptocurrencies. Transactions become secure (encryption), immutable and do not depend on a trusted third party like a bank, credit card company or a transaction clearing institution(7). For these reasons, they can also be called distributed trustless(8) systems.

The blockchain can be considered of having self-contained security. It is secure within its own boundaries. There has been no single successful attack on a blockchain itself. Issues arise at the boundaries when for example exchanging a token (Bitcoin) into another (crypto-)currency(9).

The convincing basic characteristics of the blockchain technology mentioned above have inspired enterprises, associations and organizations to take it beyond the application to cryptocurrencies and to create a vast array of new ideas for decentralized applications ranging from prediction markets, decentralized cloud storage, token exchanges (token economy), ride sharing, financial transactions to medical and healthcare use cases.

This is possible by adding what is called smart contracts to the blockchain. Contracts in a blockchain are like autonomous agents that live inside of the network. They are triggered by events or transactions and can produce themselves events and transactions as a result depending on the contract(10) rules. In essence, it allows disrupting intermediaries needed to provide consistency as a service.

Think about a peer-to-peer crowdfunding platform where the contract is implemented as a smart contract on a blockchain. The smart contract is programmed so that it contains all the rules of this crowdfunding platform such as how to submit a valid funding proposal, how to send funds (using the platform’s cryptocurrency or another one) and the conditions to be met under which the funds are released etc. Other projects like La’Zooz ride sharing community are in direct competition to services like Uber where the provision of the consistency as a service is inherent to the blockchain and smart contract implementation. It’s cutting out the middle man and reducing cost for clearing. And with cryptocurrencies or tokens to exchange value we no longer depend on governments or central banks for a means of exchange. In addition to value exchange governance tokens could be issued for the community members to take important decisions. This has the potential for more self-organization and allows people to participate with less barriers in communities that they had no access to before.

In the 1990s the Internet started to change the way we communicate today. In the dawn of the blockchain technology, we seem to be at a similar disruptive crossroad that allows decentralized economic networks and distributed autonomous organizations (DAO) to emerge.

Traditional command & control top down management styles and approaches do not work well in a decentralized world. In a more and more networked environment with distributed organizations we need to apply decentralized governance models and approaches. It is time to (re-)think governance(11) for these networks, organizations and communities and the social impact on the individuals that today mostly still live and adhere to the existing institutional structures.

Governance models for social interactions in organizations based on tInstitutional Technologies such as the blockchain have yet to be understood, defined and used in practice.

Even though distributed autonomous organizations (DAO) are very much in their infancy and still in an experimental phase we can use the following description as a starting point to discover what governing models might be applicable and what their social impact could be. “… DAO is an organization that is run by rules that are created by their members through a consensus process and then written into a set of contracts that are run via computer code, thus enabling the automated management of a distributed organization. On a more technical level, a DAO is an organization that is managed through rules encoded in smart contracts, and run on the blockchain. DAOs are online platform communities, with their resources organized according to rules agreed in advance and set out in its code. DAOs are open source software, capable of modification through member consensus. … DAOs are essentially a set of complex smart contracts that combine to form a set of rules that manage the operations of a group of members and their resources.”(12)

Distributed, decentralized organizations are self-organized and self-regulated – there are no formal centralized management structures. They work on the basis of peer-to-peer interactions and decentralized collaboration with local feedback loops that align the individual with the group. Peer-to-peer evaluations create trustworthiness in the organization. How do these aspects relate to the ebbf (ethical business building future) core values(13) of Unity and Moderation?

At the core of these organizations “is the idea that groups are about value as measured by some form of a token. With distributed ledgers, we can create markets out of tokens that represent whatever value system the organization is based around. It is this value, token system and market mechanism that are at the heart of the organization, they regulate the system and define any one person’s position within the group. … a person’s position in the organization is based upon the value they have contributed as measured by the other members that they have interacted with. Their value and corresponding reputation that they have received through their interaction with other members defines their status within the community, with all of this being encoded as tokens on the blockchain.”(14)

How do these ideas align with the ebbf operational principles(15) of Consultation, Collaboration and Responsibility?

What about the human side? Sustainable social relationships are created by real life interactions and not virtually. What risks are involved? Could this go into the “wrong” direction?

An important question to ask is whether we should adapt to the underlying technological means of the blockchain as we understand it today or whether we should define a better organizational model and governance for our society that is the basis for a technology that supports these models?

Or is the blockchain technology the enabler for a new development in social organization? Can sustained social transformation only really happen when new economies and technological means make it possible? Meaning that organizational evolution is not determined but enabled by technology?

Society shapes technology according to the needs, values and interest of people who use the technology. But at the same time technology sets the framework for what is physically possible at a given point in time.

We will explore these and other questions at the ebbf conference annual conference in Geneva end of May in the Friday afternoon learnshop #4.

Footnotes:

1 according to calculations by the digiconomist.net website

2 Good examples are Cardano, IOTA, Dfinity, and Ethereum.

3 anonymous group or person

4 every transaction is authenticated through a unique digital signature

5 any block of data can be tracked back in the chain of blocks; in Bitcoin there is pseudo anonymity unless you change your encryption keys for every transaction

6 the enciphering and deciphering of messages in secret code or cipher; also: the computerized encoding and decoding of information – Merriam Webster Dictionary

7 even though the Swiss Financial Market Supervisory Authority FINMA has recently published guidelines for Initial Coin Offerings (ICO)

8 A trustless system is one that does not depend upon the intentions of its participants, good or bad. The system functions in the same way regardless of intentions. The blockchain with a peer-to-peer transparent and immutable protocol is trustless.

9 There have been many issues with exchange platforms. And the problem is exactly the intermediary who can have security problems or provide fake crypto, cheat on exchange rates, etc. If we create a truly decentralized way to perform the exchanges the problems would probably disappear. – a senior principle blockchain consultant from a large technology company

10 Smart contract – code that facilitates, verifies, or enforces the negotiation or execution of a digital contract (trusted entity must run the code). Peer-to-peer agreements that live on the blockchain network (forever). A prominent example is the smart contract platform Ethereum.

11 Establishment of policies, and continuous monitoring of their proper implementation, by the members of the governing body of an organization. It includes the mechanisms required to balance the powers of the members (with the associated accountability), and their primary duty of enhancing the prosperity and viability of the organization. Read more: http://www.businessdictionary.com/definition/governance.html

12 Complexity Lab – Decentralized Autonomous Organizations

13 The 7 ebbf core values

14 Complexity Lab – Decentralized Autonomous Organizations

15 Operational Concepts (second half of the page)  ”

By Kurt Specht

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