Responsibility Without Power? The Governance Of Mutual Distributed Ledgers
Wednesday, 19 July 2017
Responsibility Without Power? The Governance Of Mutual Distributed Ledgers (aka Blockchain)
by Simon Mills and Bob McDowall
sponsored by the Cardano Foundation
Long Finance (July 2017), 48 pages.
Mutual Distributed Ledger (MDL, aka blockchain) technology is in an emergent phase. New applications are under development; new uses are being researched; new consortia are being formed to explore MDL applications. Considering appropriate governance structures has had a lower priority so far, but trust in the increasingly popular systems will depend on their incorporating good governance principles. It was the aim of this study to identify those principles, in order to provide a roadmap for developers and users alike.
An analysis of the material collected through desktop research, as well as several discussions with practitioners and stakeholders including a conference and webinar on the subject, has revealed that effective governance in MDL systems relies on people rather than software and rests on three pillars:
- Architecture: The role of the governance structure, its composition, remit, powers, responsibilities, and its relationship with users, is a critical component.
- Accountability: Effective governance of MDLs enhances trust. Trust is enhanced when a governance structure is accountable to its stakeholders, transparent in its decision-making, and subject to periodic audit and third party review.
- Action: The governance structure must develop strategic and risk management plans, which are delivered through effective performance management frameworks. Trust can be further enhanced through the use of the voluntary standards market to independently verify performance metrics and the systems established to compile them.
Based on these conclusions, the report puts forward a simple checklist highlighting the key issues that organisations should consider in creating a strong and stable foundation:
| Public MDL | State-Sponsored MDL | Private MDL | Consortium MDL | |
|---|---|---|---|---|
| Architecture | What is the legal framework for the MDL? | Which department owns the MDL? | What is the legal framework for the MDL? | What is the legal framework for the MDL? |
| How is consesnsus created? | How is policy made and rolled out? | How is policy developed and rolled out? | How are consortium members represented? | |
| How are decisions made, particularly with respect to changing rules or software? | How does MDL policy fit within the wider policy environment? | How are decisions made, particularly with respect to changing rules or software? | How are decisions made, particularly with respect to changing rules or software? | |
| How are decisions enforced? | Does the oversight committee have sufficient technical expertise? | How are decisions rolled out? | How are decisions enforced? | |
| Does the network have paid employees? Who manages them? | Who does the oversight committee report to? | Does the board have sufficient expertise in both the technology and the sector where it is being applied to? | Does the oversight committee have sufficient technical expertise? | |
| How are user disputes resolved? | What mechanism has been established to deal with complaints? | How are user disputes resolved? | How are disputes between consortium members resolved? | |
| Is there a clear separation of the functions of power? | Is the legislative branch sufficiently engaged? | Has a service level agreement been developed? | Does the consortium have paid employees? Who manages them? | |
| Does the parent structure have a written constitution which details terms of use as well as governance? | Does the legislative branch have sufficient technical expertise to understand the implications of policy changes to the MDL? | How is delivery of the SLA monitored and what are the penalties for variance? | Does the consortium have a foundation agreement which lays out terms of service? |
| Accountability | Who are the stakeholders? |
|---|---|
| How are stakeholders concerns represented? | |
| Is there a central record of decision making? | |
| Is there a mechanism for stakeholders to challenge decisions? | |
| Are there independent mechanisms for resolving disputes by mediation, arbitration or expert determination? | |
| How are these mechanisms enforced? |
| Action | Has a strategic plan been developed? | |
|---|---|---|
| Has a Risk Management Plan been developed? | ||
| Has a Performance Management framework been created? |
| What arrangements have been made for reporting, third party audit, and verification? How will stakeholder access these reports? | What arrangements have been made for reporting and auditing? Who will have access to these reports? | What arrangements have been made for reporting, third party audit, and verification? Will users have access to these reports? | What arrangements have been made for reporting, third party audit, and verification? How will consortium members have access to these reports? |
Notes to Editors
Simon Mills is the former Corporate Policy Manager and Head of Sustainable Development for the City of London. Since joining as a Z/Yen Associate in 2016, Simon has worked on mutual distributed ledgers, standards, sustainable business, and policy performance bonds. simon_mills@zyen.com
Bob McDowall is a former Member of the States of Alderney, one of the Channel Islands, where he served as Chairman of the Policy & Finance Committee, the senior decision making Committee. He now has a number of consulting and advisory roles in the private sector. Bob is a frequent contributor to the financial industry media and has over 35 years experience in the Banking, Securities and Investment Industry. BobMcDowall@assured.uk.com
Long Finance – www.longfinance.net
Established in 2007, Long Finance aims to improve society's understanding and use of finance over the long term by hosting and promoting a series of lectures, discussion events and research publications. The initiative began with a question – “when would we know our financial system is working?” – and seeks to challenge a financial system that revolves around short-term thinking and practices.
Z/Yen Group – www.zyen.com
Z/Yen is the City of London’s leading commercial think-tank, founded to promote societal advance through better finance and technology. Z/Yen ‘asks, solves, and acts’ on strategy, finance, systems, marketing and intelligence projects in a wide variety of fields. Z/Yen manages the Long Finance initiative.