Blockchain, first introduced as a disruptive innovation, holds great potential to improve both the financial sector's reputation and socioeconomic well-being while at the same time challenging and engaging all aspects of financial markets, stakeholders, businesses and stakeholders at the same time.
Our analysis indicates there needs to be more research done solely on corporate governance's implementation of Blockchain; most articles focus on other blockchain topics like Initial Coin Offerings (ICOs) or cryptocurrency, with only passing references made about applications related to corporate governance utilizing this disruptive innovation.
As our research will become ever more pertinent in the post-COVID-19 world, when transacting business digitally will become essential in the "new normal", understanding Blockchain (BC) applications to corporate governance is becoming a crucial one.
In order to fully grasp their use in corporate governance and regulation today, we delve deeply into previous literature from both scholars and industries related to the implementation of BCs, such as conventional theories in corporate governance.
As well as how writing has evolved over time about using Blockchain Technology within corporate governance practices; our analysis highlights changes over time as well as crucial areas related to its incorporation within corporate governance theories; as well as commonalities between academic literature as well as patterns within them all that allows for comparison across both sectors in terms of commonalities patterns deficiencies that exist between academic pieces of literature as well.
Additionally, we present an integrated managerial, ethical and behavioral perspective of Blockchain's application in corporate governance and regulation. Furthermore, we create an empirical database, conduct an in-depth examination of global blockchain start-up funding practices, project future investments in this space, and create a framework to implement Blockchain in corporate governance environments.
Corporate Governance
According to The report, blockchain corporate governance refers to "the system by which companies are directed and controlled", one of the first widely accepted definitions of this term. Scholars have adopted various modifications of this initial definition when conducting studies about corporate governance. Agency cost theories of corporate governance state that protecting shareholders and other stakeholders from managerial discretion is at the core of sound corporate governance practices.
Adopting governance mechanisms is necessary in order to align stakeholders' interests as ownership, control, and divergent interests of various parties are divided among themselves. Research has uncovered various internal and external corporate governance mechanisms. These systems strive to reduce agency expenses and ensure a successful decision-making process that maximizes a firm's wealth, with ownership structures such as shareholders and directors constituting central internal mechanisms. Director and manager compensation is another vital mechanism.
Transaction cost theory represents an interdisciplinary alliance among law, economics and organizations, first described by Coase's paper on organizations before further being elaborated upon by Williamson. According to transaction theory, firms are defined as groups of people with diverse goals and points of view who come together with a common purpose to form something greater than themselves.
One core tenet of transaction theory states that businesses now take over from markets in allocating resources effectively. However, the structure and organization of a company can dramatically impact its output and pricing strategies. Davis and Thompson proposed the Stewardship Theory as an alternative corporate governance theory with roots in psychology and sociology that describes managers and executives acting as guardians protecting shareholders while creating wealth through safeguarding.
Blockchain And Corporate Governance
These days there is so much buzzing around on social media about new ways of working out - but is that really helpful or what? For starters, they might see someone they recognize on Facebook! And finally, at work. Yermack provides us with the article most closely aligned with our research. He claims that adopting Blockchain in corporate governance would increase liquidity, decrease expenses, facilitate precise record-keeping as well and provide transparent ownership. His article emphasizes the use of crypto tokens or cryptocurrency as being the critical distinction between blockchain-based businesses and those not on this blockchain technology platform.
These tokens could influence business decision-making on operational, financial and strategic levels. Network externalities arise when tokens created through entrepreneurial efforts facilitate stakeholder coordination within an ecosystem, leading to network externalities. According to reports, Blockchain's immutability, transparency, and wealth-sharing draw developers, early adopters, entrepreneurs and early-stage companies to this technology. Li and Mann discovered that positive network effects are produced when platform quality increases significantly, thus drawing in additional users and exponentially raising its token's value.
Legal and Governance Aspects of Blockchains and Applications
Blockchain businesses represent an emerging form of institution that may necessitate novel approaches for governance and economic analysis, prompting numerous studies to emphasize how essential government oversight is in fostering the adoption of this disruptive technology. Analysis emphasizes the necessity of proper governance when discussing cryptocurrency platforms and alternatives, equity crowdfunding being subject to regulation under blockchain technology and equity crowdfunding being regulated as well. Zhu and Zhou propose Blockchain as a workable solution that could produce low-cost, effective, secure platforms with regulatory oversight while they examine Chinese equity crowdfunding platforms.
Read More: Mastering Blockchain Development: A Comprehensive Guide for Beginners
Blockchain Technology
Distributed ledger technology encompasses more than just blockchain technology; however, given that "blockchain" has become so widely recognized, we often refer to it instead of DLT (Distributed Ledger Technology). Public and permissioned blockchains are two primary types. No authorization is needed in order to view or utilize public blockchains like Bitcoin.
Ethereum and Bitcoin are two prominent examples, with Bitcoin creating the original one. Most public blockchains are run by no one specifically and operate open-source. Peer networks agree on the current state of blockchains; some more modern platforms, like Hashgraph, Dfinity, Holochain and IOTA, do not function on blockchains like Bitcoin does, where peers or miners perform verification of blocks on this network.
Bitcoin blockchains serve as a ledger that tracks how many bitcoins exist in each wallet owned by specific entities and details all sends and receives made using that wallet. Public keys replace names when used for banking accounts - comprising lengthy strings of numbers and letters instead. Each public key's ownership of bitcoins can be tracked using Blockchain; those possessing their private essential control the public one they represent; anyone possessing their private key controls its public counterpart; as bitcoin can be transferred using this latter mechanism alone highlights just how vital its security truly is.
Smart Contracts
Smart contracts, an integral component of blockchain technology, consist of computer-coded instructions stored on a blockchain network. According to Szabo (1994), smart contracts are computer protocols capable of fulfilling contract terms automatically and reliably. Smart contracts provide a way to ensure payment by contract parties - and Ethereum was one of the first blockchains to leverage them effectively.
Smart contracts can reduce transaction costs associated with compliance monitoring and enforcement by eliminating monitoring costs associated with compliance laws and regulations. Sisli-Ciamarra suggests that smart contracts could have an effect on the composition of companies' board memberships; signaling may reduce bankers serving on boards in order to convey creditworthiness information back into financial markets.
Decentralized Autonomous Organizations (DAOs)
Firms or organizations have long been seen as natural structures for conducting business since the middle of the 19th century. However, Blockchain technology holds great promise to transform these institutions into digitally decentralized networks of stakeholders in future organizations. Blockchain can enable a new type of organization that does not rely on senior leadership or hierarchies for its operation.
Blockchains provide a platform for forming novel forms of decentralized, distributed organizations. Shermin highlights smart contracts as critical elements to building an efficient trust regulatory framework on which Blockchain can build. He further suggests that decentralized governance could solve classic principal-agent problems via decentralized administration. A Decentralized Autonomous Organization, or DAO, combines smart contracts, blockchain technology and interactive stakeholder participation into an autonomous system of governance. Each DAO stakeholder owns tokens representing shares in its organization or business and demonstrating individual performance share shares.
Decentralized Autonomous Corporate Governance (DACG) Framework
Blockchains are distributed ledgers that efficiently record transactions among parties in an unchangeable, verifiable format. They may be open, permissioned, or private, and their jobs can even be configured on some platforms to initiate certain types of transactions automatically under specific conditions (smart contracts). Corporate governance enabled by Blockchain could significantly reduce reliance on intermediaries such as banks, brokers or attorneys while creating less friction in transactions between users, organizations, stakeholders and blockchains; their digitized version could even change corporate governance within decades of adoption.
Why Use the DACG Framework?
At the core of most organizational transactions are four primary drivers: risk management, security and privacy protections, managing complexity and costs and profit maximization. While these goals will ultimately become the focus of all your endeavors as an organization, remembering them all may prove challenging, especially when investigating novel technologies like blockchains. Our framework helps organizations and interested parties remember all that matters at a glance.
Frameworks enable us to organize our thoughts and communication about complex, novel or unknown concepts by providing structure. Thus, stakeholders will gain clarity and purpose from an impact of blockchain adoption framework established at an elevated level - our framework encompasses stakeholders, market mechanisms, blockchain impact analysis techniques (BIA), corporate governance theories, and blockchain governance at its core as primary elements.
Blockchain Governance and Ethical Aspects
One primary concern of blockchains is governance. Computer programs run Public blockchains independently; each transaction in the chain must conform to specific code that controls transaction sizes or contingencies and specifies inputs, timing and prioritizing inputs into its blockchain record. These blockchain governance parameters resemble those imposed on listed companies by stock exchanges.
Most companies exploring blockchain initiatives use permissioned blockchains - an augmented version of Ethereum, for instance - when exploring projects utilizing it. Like partnerships or customized financial contracts, governance rules for permissioned blockchains must be discussed and revised over time, just like partnerships and customized contracts do. Beck et al. provide an outstanding analysis of blockchain governance from a DAO case study perspective.
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Conclusion
Blockchain technology holds great potential to address various problems currently impacting corporate governance systems. However, many obstacles still stand in their way - permissioned versus public blockchains, capital needs, and hacking potential are just a few factors, among others, that need further examination and research.
