The Myths of Blockchain Governance

Advocates of blockchain technology promised that it would revolutionize governance through strong commitments, transparency, and “trustlessness” – the absence of any need to trust a bank or other intermediary. However, in reality, these promises have largely fallen short. Instead of eliminating traditional governance problems, blockchains have merely relocated them – shifting power from familiar institutions to new gatekeepers like developers, foundations, and companies.

The Illusion of Immutability

Blockchain advocates built their narrative on the claim that blockchain rules and data are immutable – once written, they cannot be changed. However, this claim crumbles under scrutiny. The 2016 hack of The DAO provides a clear refutation. When an attacker exploited a bug to drain $50 million worth of Ethereum from the decentralized autonomous organization, the Ethereum community faced a choice: accept the theft as the price of “code is law,” or intervene.

Core developers, led by Vitalik Buterin, orchestrated a “hard fork” (i.e., a bifurcation) of the chain that effectively rewrote history: To return of the stolen funds, the fraudulent transactions were left on the abandoned branch of the chain. This wasn’t the only time that developers implemented significant changes to the ledger or code. Ethereum’s 2022 transition from proof-of-work to proof-of-stake fundamentally altered the network’s consensus mechanism.

The Myth of Trustlessness

Founder Satoshi Nakamoto promised Bitcoin would be “a system for electronic transactions without relying on trust.” However, this vision died with the rise of specialized mining hardware. Today, Bitmain Technologies, a private Chinese company, controls approximately 75 percent of the global market for Bitcoin mining equipment.

The company also dominates mining pools, mining farms, and cloud mining services – creating a blockchain conglomerate with both incentives and means to influence governance. The Bitcoin “block size wars” of 2016-2017 revealed how supposedly trustless systems still depend on key stakeholders.

The Reality of Transparency

Blockchain advocates also claimed that public ledgers and open-source code create unprecedented transparency. However, this claim proves equally illusory. While transaction data are public, understanding them requires specialized knowledge that few possess.

Smart contracts on Ethereum deploy as bytecode – machine language incomprehensible to all but a tiny technical elite. Even when projects publish source code, users must trust that it matches the deployed bytecode and understand complex programming concepts to evaluate its behavior.

The Failure of Blockchain Governance

Blockchains have achieved the opposite of their transparency promise: public data few can interpret, governed by structures more opaque than traditional institutions. The case of EOS, a blockchain platform designed to support the development of decentralized applications, demonstrates how these myths play out in practice.

Once dubbed the “Ethereum killer,” EOS raised $4 billion in the largest initial coin offering ever. Its governance crisis began immediately after its 2018 launch when block producers froze accounts without official authorization – what critics called “consensus by conference call.”

The Limits of Blockchain Governance

The failures of blockchain governance reveal that they haven’t solved governance problems; they’ve made them observable. By stripping away institutional infrastructure we take for granted, blockchains reveal fundamental challenges all governance systems must address: collective action problems, principal-agent conflicts, and centralizing tendencies.

Token-based voting has devolved into plutocracy where large holders dictate outcomes. Exit options through forking are constrained by network effects. Voice mechanisms suffer from the participation problems plaguing direct democracy, compounded by technical complexity excluding most users from meaningful participation.

Conclusion

Blockchains remain valuable as governance experiments, attempting to solve real problems like reducing transaction costs and eliminating rent-seeking intermediaries. Their failures are as instructive as their successes would have been.

Cryptography cannot solve governance problems any more than constitutions or corporate charters can. These challenges require ongoing negotiation among stakeholders with divergent interests – the very human element blockchain technology was supposed to eliminate.