Blockchains are Bureaucracies par Excellence

Introduction

In an earlier article, I likened decentralized networks to fields — social arenas of symbolic and material production within which interested actors compete and cooperate over network-specific resources.

The promise of blockchain and related technologies is that these arenas can be set up in ways that minimize trust requirements, reduce concentration of control over data, and enable free, censorship-resistant transactions in an increasingly global and automated setting.

In this post, I propose this development represents an important step in the evolution of bureaucracy. That may sound counterintuitive given this term’s common association with inefficiency and excessive paper-shuffling. But once we understand the essence of bureaucratic organization, it will become clear that blockchain networks are actually bureaucracies par excellence.

What is a bureaucracy?

Both in public and private settings, the word bureaucracy refers to a form of organization that’s anchored in written, impersonal rules aimed at maximal procedural efficiency.

The definitive description of the principles of bureaucratic organization comes from the influential German sociologist Max Weber. [1] Among his many contributions to social theory, Weber proposed a tripartite classification of legitimate authority into charismatic, traditional, and legal-rational. While all three can be usefully applied to analyze the operation of power in blockchain networks, it is legal-rational authority that is typified in bureaucracies and thus most relevant for this post.

Here’s a list of elements that characterize the ideal bureaucratic form:

  1. Official conduct based on and subject to written rules and regulations
  2. Supremacy of these abstract rules over individual preferences
  3. Functional specialization, i.e. a clear division of roles
  4. Regular and continuous execution of assigned tasks
  5. Impersonal authority and treatment
  6. Open meritocracy, no favoritism
  7. Political neutrality

A perceptive reader may have noticed that I left out hierarchical chains of command and certain principles governing the recruitment, conduct and management of administrators. These elements represent means to an end that technology offers new and hopefully better ways to achieve. For the time being, they are underdeveloped or less visible in network governance, though relevant in the open source software development process that is central to the life of any network but requires separate analysis — a task I intend to take on in future posts.

I have also left out the legal basis of bureaucratic organizations, usually found in constitutional law, because the exact legal definition of blockchain networks is still to be determined. That said, it is only a matter of time before they become recognized by and integrated into both traditional and emerging legal structures.

What’s bureaucratic about blockchain governance?

Given that the defining feature of a bureaucratic organization is protocol, i.e. the rules and procedures governing its operations and the handling of the information that it administers, the idea that blockchains are bureaucracies should strike no one as far-fetched.

At the core of all blockchain systems we find a set of highly formalized rules — a cryptographic protocol and a consensus algorithm. With these key elements in place, network-specific domains of knowledge and specialized roles can develop, leading to an increasingly higher level of institutionalization — something we’ve seen happen around most prominent networks. Examples include the BIP process and its equivalents, the establishment of network foundations, the use of formal communication channels for regular updates, the creation of centralized businesses that utilize these networks, and the introduction of formal voting and dispute resolution mechanisms, among many others.

But if everything is increasingly fixed and formal, why is network governance so messy? The reason is that, in most cases, still only a small portion of the overall system is transparently formalized. Crucially, the political process preceding the changing of the rules is often undefined and thus disorganized. Granted, some view the lack of formal off-chain governance as more of a feature than a flaw. But it can also paralyze development and, in my opinion, does more to conceal power capture than help avoid it.

So what’s bureaucratic about blockchain governance? On-chain — everything. Off-chain — increasingly more of it. While this does not mean all off-chain governance should or even could be formalized, the gradual increase in written rules and guidelines is certainly a testament to the perceived benefits of procedural clarity. Meanwhile, off chain-politics should appropriately be seen as both the biggest problem of, and the most compelling solution to network governance.

The bigger picture

Historically, the full deployment of a general purpose technology such as mechanization or electricity has resulted in the emergence of organizational standards native to their era — a new normal way of doing things. [2]

Although blockchain and decentralized consensus are sometimes also portrayed as revolutionary general purpose technologies, I think it’s more appropriate to view them as a continuation of the information and communication technology (ICT) revolution. However, blockchain could represent a decisive step in the emergence of ICT-native forms of socio-economic organization that are digital, decentralized, global, and semi-automated at birth. A new normal way of doing things, at least in areas uniquely enabled by ICT such as digital services and collaboration. Clearly, such forms would be fundamentally different from traditional organizations that are currently going through their own versions of digital transformation.

Despite their promise as global mega-bureaucracies in which administrators are replaced by code and users have sovereignty over their personal data, there are a hundred reasons to be skeptical about the potential of blockchain networks to develop into systemically important economic infrastructure. One of the most potent criticisms concerns their ability to compete with the deployment, already well underway, of immense digital communication networks centrally managed by governments and corporations who, as you’re reading this, are opportunistically engaged in a global data grab.

But regardless of which of these parallel developments prevails as the norm, should the users of these networks — and this will eventually include everyone on the planet — be worried? That depends on how one feels about the fundamental trade-offs of a society that’s been in the making for a while now.

Building a silicon cage

Weber saw bureaucratization as part of a more general trend in Western culture — the gradual rationalization of all spheres of social existence, i.e. the replacement of traditional norms and values with rational calculation and management under legitimate legal authority.

This process of rationalization is ongoing and has only been amplified by globalization and ICT. The ideas of big data analytics, automation, smart contracts, and decentralized autonomous organizations (DAOs) are reflective of a continuous drive to hyper-rationalize all key techno-economic processes and, wherever possible, create at least the illusion of a complete lack of subjective human judgement and control over how “the system” treats its constituents.

Though Weber considered bureaucratization the most efficient way to organize society, by no means did he see it as unproblematic. Real bureaucracies always fall short of the ideal, and can devolve into over-administration and counterproductive adherence to strict formal rules that are out of touch with the actual needs of their subjects. Not to mention their potentially numbing effect on human creativity. Weber warned that these and other more negative tendencies of bureaucratization could lead society towards a “polar night of icy darkness”, trapping individuals in a soulless and dehumanized “iron cage” of rational control. [3]

Many of today’s bureaucratic functions, both in government and corporations, are already performed not by human administrators directly but by machines controlled by humans. Soon enough, serious attempts will emerge to entirely remove human intermediation and subjectivity from the administrative equation. Here, the potential convergence of blockchains and Artificial Intelligence — the rise of middlemachines-is provocative as middlemen are replaced by middlemachines.

Of course, the results remain mainly illusory — absolutely everything about decentralized networks and autonomous organizations is still determined by the arbitrary preferences of concrete human beings. But the expression “faceless bureaucracy” is no longer just a metaphor. Weber’s national iron cages are gradually being rebuilt into global silicon ones.

Concluding thoughts

As with most technology, the appropriate adjective to describe the effects of bureaucratic decentralization and automation is “ambivalent”. Having machines take care of routine and mundane tasks is a good way to tackle some of the problems that have historically plagued institutions. But it comes with some old, new and yet unknown strings attached.

And then of course the elephant in the room — governance. The famous Pournelle’s Iron Law of Bureaucracy states that “in any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely.” Time will tell to what degree this holds in the case of blockchain-based networks.


I’d like to thank Chris, Joel, Brad and Alex at Placeholder, and Carlota Perez for their helpful feedback on earlier versions of this text.


References

[1] Weber, M. (1922). ‘Bureaucracy’. From H.H. Gerth and C. Wright Mills (eds.), Max Weber: Essays in Sociology (pp. 196‐266). Oxford University Press. Available at https://archive.org/details/frommaxweberessa00webe

[2] Perez, C. (2011). ‘Technological revolutions and techno-economic paradigms’. Working Papers in Technology Governance and Economic Dynamics no. 20. Tallinn University of Technology. Available at http://technologygovernance.eu/files/main/2009070708552121.pdf

[3] Weber, M. (1946). ‘Politics as a Vocation’. From H.H. Gerth and C. Wright Mills (eds.), Max Weber: Essays in Sociology (pp. 77‐128). Oxford University Press. Available at https://archive.org/details/frommaxweberessa00webe