The Digital World Faces Two Key Governance Tests

This is an extension of the on-going debates over accounting, law and financial regulation spurred by technological advances that challenge the intellectual precepts as well as management resources of existing legacy institutions and their processes.

The question is what to keep of the historic systems that reflect centuries of ethical, legal and social norms - and what to replace in light of modern realities.

There will always be opposing interests. The issue is how to reduce the friction that inhibits optimization of the benefits they may offer. JL

Richard Waters reports in the Financial Times:

The hunt for ways to govern global digital infrastructure that stretches today’s institutions: how to manage globally distributed systems that have to satisfy many different, often opposing interests.
Two of the most important experiments in digital governance are about to be put the test. They represent wildly different approaches to the problem of how to manage globally distributed systems that have to satisfy many different, often opposing interests.The outcome will be of long-term importance not just to businesses that are coming to rely on the new digital infrastructure, but to anyone who lives a large part of life online.

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It is questionable whether the US would ever have exercised its sole remaining sanction over the network and withdrawn its authority to allocate IP addresses. That would probably have triggered the break-up of the global internet. But the American withdrawal — subject to approval of Congress — leaves a puzzle: how should a global asset like this be managed?
ICANN has come up with a convoluted system of checks and balances involving advisory committees and other bodies representing various interest groups.
That may be one way to prevent a hostile takeover by undemocratic governments out to subvert the open internet. But the risk is that, in building firewalls to prevent itself from meddling by any one group, ICANN turns itself into a self-perpetuating bureaucracy. When designing a supranational agency such as this, though, there are no blueprints.

The second big test involves a much newer internet phenomenon. As a distributed network for trusted transactions with no governing institutions, bitcoin has been a fascinating experiment. But the digital currency is facing a moment of truth.

This week, reports have spread that the system is starting to hit a ceiling in the number of transactions it can handle, bringing long delays in settlement confirmation times. Beset by arguments between warring factions, the bitcoin “community” has not yet been able to come up with a commonly-agreed formula for updating the capacity of the blockchain — the digital open ledger on which all transactions are recorded.

As interest in bitcoin increases, US officials are looking into how to regulate, rather than shut down, the virtual currency
Putting aside the many things that could thwart the cyber-currency — not least, action by governments worried about it becoming the currency of choice for terrorists and criminals — its potential remains alluring. The venture capitalists, entrepreneurs and software developers drawn to bitcoin still argue that it is a foundational piece of what could become an internet of money.

Governance in the bitcoin world is the polar opposite of what happens at ICANN. In place of international summits, endless committee meetings and convoluted compromises, bitcoin’s practitioners are fuelled by bitter technical rivalries.

The future turns on whether this melee of warring factions can solve the problems facing the currency. Rather than an agreed approach to upgrading blockchain technology, the network’s operators are in a Darwinian struggle to come up with a solution that will rise above rival ideas and win enough backing to become a new standard. The latest contender is a version called Bitcoin Classic. This would double the transaction-handling capacity of the network overnight, heading off the immediate crisis. Though only a short-term fix — the blockchain would probably hit another ceiling within a year — it would at least show that bitcoin’s messy free-for-all can lead to progress.

Bitcoin Classic is used by around 22 per cent of the “nodes” on the bitcoin network, and the number is growing fast. But it will need to find much greater support before bitcoin users are forced to move over en masse.
If the backers of Bitcoin Classic are right, a mandatory “hard fork” like this would represent much more than a technical fix. It would be the first demonstration of a new model for digital governance, modelled on the way open source software projects operate.
There are many arguments for why this free-for-all might be hard to adapt. For a start, it is still unproven. Also, were a network like this ever to become a key piece of the global digital infrastructure, it could never be left hostage to the rivalries and brinkmanship that still threaten to derail bitcoin. But in the hunt for ways to govern global digital infrastructure that stretches today’s institutions, the outcome will be of more than passing interest.