Blockchain governance
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Understanding Governance Model in Business Networks Powered by Blockchain
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Blockchain governance
- 1. Making Blockchain Real for Business Understanding Governance Model in Business Networks Powered by Blockchain Nitin Gaur – ngaur@us.ibm.com
- 2. Difference in focus points of permission less and permissioned enterprise-oriented networks Permission less networks Permissioned enterprise-oriented networks Designing and implementing economic systems based on principles of decentralization, open or self- governance and transparency Creating of crypto-assets backed by real value Technology-driven reimagining the ecosystems, business network, regulatory compliance, confidentiality and privacy, and business models Building innovative technical solutions Creating proof-of-concepts with quick results Implementing existing business processes with blockchain Decentralization and disintermediation at core Involving existing intermediaries and central parties in developing common economical incentives VS VS VS VS
- 3. Difference in governance fundamentals of permission less and permissioned enterprise- oriented networks Permission less networks Permissioned enterprise-oriented networks Economy-base incentives Network self-management and coordination Consortium-defined incentives and penalties Consortium-defined semi- autonomous governance structures VS VS
- 4. Page 4© 2017 IBM Corporation IBM Confidential Building Blocks of Governance model for permissioned enterprise-oriented networks Industry and use case-specific which need to factor various facets and evolution of the industry itself. Not only govern participation in business networks but also an equitable cost structure that is fairly spread based on participant activity. A discipline that is focused on IT infrastructures, performance, cost structures, and business risk. (Blockchain) Network Governance (Information) Technology Governance Business Network Governance
- 5. Business Network Governance What is it? A industry specific and use case specific model that factor various facets and evolution of the industry itself. Examples • Common/shared services management, such as KYC, audits, reporting, etc. • Network-related charter and communication • Quality assurance, performance, and network security • Product and business network evolution • Enforcement of legal and regulatory frameworks • Adherence to industry-specific requirements • Framework, charter, and stewards of technology and network governance frameworks • Formulate appropriate business models , legal charters, and rules of engagement for network business operations
- 6. What is it? Not only govern participation in business networks but also an equitable cost structure that is fairly spread based on participant activity. This also involves a structure that allows for autonomous and likeminded business entities to engage in business transactions, contracts, and value creation. Examples • Membership onboarding/off-boarding • Equitable and fair cost structure – chargeback models • Data ownership structure – for business entities joining and leaving the network • Regulatory oversight provisioning – including a model to act as a delegate to generate regulatory compliance reporting • Permissioning structure – key management that can include a model • that is vote-driven but centrally managed; • has a federated structure – members inviting other business entities; and • has a delegated structure – includes services providers that can delegate to other members • Business and SLA management – the blockchain business network management • Network support services – these are business networks, so the governance model should include network support services, business network SLA enforcement, and membership services • Risk optimization – OSSs and BSSs, business continuity services/planning, network alignment to legal and regulatory requirements, etc. • network business operations (Blockchain) Network Governance
- 7. (Information) Technology Governance What is it? A discipline that is focused on IT infrastructures, performance, cost structures, and business risk which should accommodate for a model that is inclusive of distributed flexibility and distributed control. Examples • A distributed IT management structure • Model for distributed maintenance – software/HW updates, upgrades, path management • Framework utilizing industry standards—COBIT, ITIL, ISO, CMMI, FAIR, etc. – driven by the business network • Resource optimization – includes technology procurement, vendor relations, SLA management, skills, and talent management • Technology adoption and assessment – leads to keeping up with technology evolution and economic deployment models, including deployment and operational risks • Network deployment strategy – Not as simple as an application upgrade but a model that can encourage and enforce continual technology and security updates and upgrades • Network support services –should include network support services, IT SLA enforcement, and membership services • Risk optimization – operational support services (OSSs) and business support services (BSSs), IT infrastructure continuity services/planning, technology alignment to legal and regulatory requirements, etc. The IT governance model should not only incentivize technology upgrades and security updates but penalize non-compliant systems/nodes, thereby creating an incentive mechanism to ensure continued participation.
Editor's Notes
- in the genesis of a blockchain-presented value network that is self-governed, censorship-resistant, and whose governance structure was defined by control points and incentive economics to maintain a balance between network-based coordination and network-based decision on transaction finality, the consensus algorithms of these decentralized networks presented a distributed governance structure where the input (transaction initiation) was from various stakeholders (owners of assets, assigned or delegated ownership or simply delegated authority), the input in form of a transaction that went through a series of network-based decentralized processing, and the decision was the output in the form of a transaction finality. The governance structure was fundamentally being based on devised incentive economic driven by consensus in hopes of governing the network. This leads to defining governance—a body (centralized or decentralized) whose sole responsibility is to make binding decisions in a given system by establishing set of law or rules. While the genesis of blockchain, which was largely permissionless (e.g., crypo-asset based networks such as Bitcoin, Litecoin, etc.), relied upon technology-based systemic governance comprising incentives and mechanisms of coordination, this systemic governance has its own set of challenges in the enterprise business networks attempting to exploit the tenets of blockchain technology. In the enterprise world that is largely regulated and relies upon (mostly) permissioned blockchain models, the checks-and-balances system is complicated by transactions between competing entities, often with regulated data and a fiduciary responsibility, which can neither account for the tangible or systemically generated incentives (crypto-assets) nor have network-wide mechanisms of coordination due to privacy and confidentiality issues. On the enterprise side of the divide, the focus was on understanding the technology and reimagining the ecosystems, business network, regulatory compliance, confidentiality and privacy, and business models that impact industry networks. The governance structure is hence an interesting challenge and emerging discipline in the enterprise blockchain world, where the debate around the spectrum that ranges between full decentralization and quasi-decentralization to fully centralized blockchain networks hinges upon the governance structure. In other words, the governance structure and landscape will determine the interaction models, growth (centralized or decentralized), technology design, and overall business operations of the enterprise blockchain network.
- In my post on Blockchain Business Models, I briefly discussed a platform that facilitates co-creation and new synergies that will need to be managed, operated with defined levels of SLA, and a robust governance structure that will not only attract new participants but sustain the confidence and business benefit of its founders and existing participants. So there is a close-knit dependency on business models and governance structure that govern various facets of blockchain network operations. A well-thought-out governance structure for blockchain networks provides an important avenue for business continuity, funding and sourcing models, and overall growth driven by the economic and financial structure of the business network powered by the tenets of blockchain technology. systemic governance that relies on purely incentive and network coordination is just inadequate to address the more structured and regulated industries and their use cases. So, based on my experience and work with clients, I have taken the liberty of defining a governance structure and landscape that not only leverage the known and proven existing practices but stitch together a model that is modular and facilitates progression and yet provides a layer of separation of competency concerns between various practitioners. As I discuss this simplified governance structure, I draw inspiration from core tenets of blockchain design and propose a governance model that is inclusive of the core tenets that include principles of incentives, penalties, flexibility, delegation, and network mechanisms of coordination. After all, we are leveraging blockchain technology to device trust networks and attempting to flatten the distinction between the miner and user, and yet enforcing rules of engagement that not only incentivize technology upgrades and security updates but penalize non-compliant systems/nodes, including similar business network rules of engagement, thereby creating an incentive mechanism to ensure continued participation and resulting business benefit and growth from blockchain-powered business networks. This business governance model not only governs participation in business networks, but also an equitable cost structure that is fairly spread based on participant activity. In this section, I am drawing from my past work around Design Principles of Blockchain Network and Blockchain Adoption in Enterprise.