Distributed ledgers are essentially social entities that need good governance to thrive.
What do blockchains have in common with utilities and city councils? Believe it or not, all three are social entities.
Blockchains, and more broadly distributed ledgers, are composed of individual “nodes” run by a number of distinct participants. If the nodes are the individuals, the blockchain is the society. And as with any society, sound governance of these networks is a critical factor in their success.
In recent years, several companies have used blockchain technology to create new products and services. Two successful examples are DLA Piper’s tokenization platform TOKO and Avery Dennison’s connected cloud service, atma.io.
Blockchain is based in open-source transparency and comes with a critical level of trust baked in. That’s especially important in a post(ish)-pandemic landscape marked by supply chain fragilities, geopolitical instabilities and a growing range of cyber threats. In this environment, companies are under increased pressure to create transparent, accountable, reliable business networks that transcend their own boundaries.
Blockchain delivers on all these counts.
Blockchain for the people
Blockchain governance is complex, covering everything from geographical and technological decentralization to the release of new functionalities on the network, the cost of transactions, the response to regulators, and the software roadmap.
For blockchain-based social entities to advance the common good, they must be administered in a balanced and far-sighted way. This includes oversight of the main governance fundamentals: network roadmap, operations and security, fairness, economics, sustainability, legal and regulations, and ecosystem development.
To understand the importance of this governance and how it can imbue blockchains with trust, let’s break down the difference between permissionless networks and permissioned public ledgers.
Permissionless networks today are the digital equivalent of the Wild West.
The “O.K. Corral” paradigm
Permissionless networks today are the digital equivalent of the Wild West. New citizens come and go, and conflict sometimes erupts.
The governance of permissionless networks, such as Ethereum or Bitcoin, is complicated because new nodes can be added to the network by pseudonymous participants. These can vary over time and do not necessarily have a recognized identity.
If citizens disagree, a part of the community can split off, creating two separate blockchains. Such “forks,” as they’re known in the blockchain world, have occurred several times in the history of blockchain-based cryptocurrencies like Bitcoin and Ethereum. These forks continuously divide the communities governing them, which makes overall consensus impossible.
Permissionless blockchains are popular in decentralized finance. While they can be entertaining to watch, their permissionless nature still presents significant issues in a traditional business. In addition to the potential for forking, these challenges include performance, scalability, and extraordinarily high electricity consumption.
The “City Council” paradigm
Permissioned blockchains are more akin to traditional businesses and integrate more naturally with typical business processes.
Organizations typically govern these networks through cryptographically secure voting processes. External control, as well as checks and balances between participants, are in some ways comparable to how city councils manage the decision making process.
For example,ServiceNow is one of 26 Hedera DLT (distributed ledger technology) operators of the Hedera Governing Council. Hedera is the leading public distributed ledger and governing body. It’s designed to be faster, fairer, and more energy efficient than existing blockchains. In the Hedera DLT, the underlying data structure is not a linear chain of blocks, but a graph structure known as a “hashgraph.”
The Council’s decisions occur mainly in virtual meetings. Council meeting minutes and decisions are notarized through the DLT. Thus, the visibility of these activities is subject to public scrutiny.
In addition to being a council member, ServiceNow is also a network user. This allows our customers and partners to connect their value chains using Hedera’s unique capabilities. The Now Platform has native “DLT superpowers” like data integrity and verifiability, decentralized identity, tokens, and multi-party business processes.
The ability to connect multiple blockchains together is critical to achieve universal adoption.
Domains like supply chain, procurement, ESG, global business services, and customer engagement require complex business networks where work flows beyond the boundaries of individual businesses.
The ability to connect multiple blockchains together is critical for these use cases to achieve universal adoption. And just as the internet we know and love today evolved from many intranets, the “internet of blockchains” will require a considerable standardization effort, and a deep understanding of what it means to govern a web of interconnected blockchains.
Think of it this way: When you travel, you don’t just buy a plane ticket. Your total experience is a chain of independently operating entities—your airline, your hotel, the events you’re attending, restaurants you’re scoping out, museum exhibitions you need tickets for. All of this comes together as a single experience, despite its many independently moving pieces.
Ideally, we’ll see this same principle in business networks. A well-governed blockchain can function as the digital equivalent of a high-functioning city—providing consumers with a “total experience” that’s personalized, enjoyable, and equipped for everyone’s needs.