Slide 1

Mutual distributed ledger (MDL, aka blockchain) technology holds immense promise for businesses, public sector, and voluntary sector organisations alike in areas as diverse as registries, provenance, chain-of-custody, business documentation, payments, and indices.  Combined with embedded code (so-called ‘smart contracts') MDLs, or ‘smart ledgers’ if you will, hold the promise of automated, frictionless trade.  MDLs also offer promise in solving a pressing global problem, identity documentation, where developing countries are hampered by financial exclusion and developed countries by trade impairment .

As highlighted in recent research sponsored by the Cardano Foundation, the States of Alderney and PwC,  one significant hurdle affecting widespread adoption of MDLs is the paradoxical need for these mutual, ‘unowned’, systems, to provide clarity on governance.  While MDLs can be compared to email, i.e. nobody owns them, there is a greater reliance on how changes in the ‘rules of the game’ are managed than simple technical protocols can provide.  Questions such as indemnity for erroneous data are more complex than a simple transmission protocol.

Over the last decade, a series of high profile corporate failures have focused the attention of boardrooms and shareholders alike on the system of rules, practices and processes by which companies are directed and controlled.  However, if an organisation manages its critical systems using a technology that creates a shared responsibility with external organisations, how can it ensure that it operates within the law, and how can it demonstrate that it is effectively managing the interests of its stakeholders? How can disputes be effectively resolved, who is liable if things go wrong, and how can the responsibilities of senior managers be effectively discharged?

The Cardano Foundation is sponsoring a research project on best practice for the Governance of Distributed Ledger Systems.  The project will examine the principal, and principle, features of a sound MDL governance system, by:

  • examining the taxonomies & performance of MDL systems, assisting potential users with specifications;
  • assessing how risks may change between sectors and applications, identifying whether one size fits all, or whether a sector-specific or technology-specific approach to governance is required;
  • identifying the principal features and responsibilities associated with a sound governance system, perhaps creating the basis for internationally-recognised standards;
  • setting out a series of short checklists to help organisations apply some of the basic principles.
Using data gathered from a variety of sources, including interviews with developers, users, regulators, and professionals, this project will result in the development of a primer laying out the fundamental principles of governance for MDLs. It is hoped that research will inform organisations seeking to migrate to, or develop new systems and services for, this technology.  Hopefully, it will help them establish appropriate governance structures in conjunction with their ‘mutual’ members in these endeavours.