Navigating governance challenges in public blockchain protocols: insights from Hayek and Habermas
Authors:   , Deshmukh Chinmay 
Published: January 2025

Blockchain technology has experienced remarkable growth since its inception in 2008, but its success has not come without challenges. One major concern is the internal governance of public blockchain protocols—the processes and mechanisms by which crucial modifications to the protocol of a public blockchain are coordinated by actors in a blockchain network. Examining recent controversies and critiques around existing protocol governance practices, the thesis identifies three broad categories of challenges associated with protocol governance and situates them within legal-theoretical context: the challenge of coordination, the challenge of legitimacy, and the challenge of epistemic competency. The challenge of coordination highlights the absence of formal meta-rules for protocol governance and reframes it within the rule of law paradigm. The challenge of legitimacy points out concerns regarding centralized, exclusory, and undemocratic protocol governance practices. The challenge of epistemic competency discusses cognitive limitations amidst complex protocol structures and the role of rational discourse in protocol governance.
The thesis emphasizes the relevance of Friedrich Hayek and Jürgen Habermas’s legal theories in addressing these challenges. It conducts an in-depth examination of their legal theories and a comprehensive comparative analysis of their work. Key observations are drawn regarding their shared emphasis on the importance of legitimate rule of law and their divergent views on its foundation based on their conflicting perspectives on the role of reason and language in norm-generation. Drawing on insights from the comparative analysis, the thesis proposes a blended approach for the design of robust and legitimate internal governance of public blockchain protocols that integrates three key propositions.
First, it argues that a public blockchain protocols can be conceived of as Hayekian spontaneous orders, and thus, changes to protocols should be approached in an epistemically cautious and incremental manner, with a focus on maintaining stability and consistency with established community practices. Second, it highlights the inevitability of protocol evolution and contends that clear and formal protocol governance frameworks aligned with the rule of law approach is essential for enabling the effective coordination of actors and ensuring the long-term sustainability of public blockchains. Third, highlighting the epistemic and legitimacy enhancing value of public deliberation, it suggests that such frameworks should integrate collaborative and inclusive deliberative democratic approaches.
To operationalize these propositions, the thesis proposes three key design elements for protocol governance involving the public, the coordinators, and the stewards. These include the establishment of an accessible and open public discourse platform, the creation of a multistakeholder proposal review and coordination board, and the formation of a stewardship council responsible for upholding protocol common-law principles.