Blockchain Networks Are Bureaucracies Par Excellence

7 min readMay 6, 2019

Introduction

In an earlier post, I likened decentralized networks to fields — social arenas of symbolic and material production in 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 reduce intermediary trust requirements and concentration of control over data, enabling censorship-resistant transactions in an increasingly global and automated setting.

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

What is 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 classic description of the principles of bureaucratic organization comes from a 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 applied to analyze the operation of power in blockchain networks, it is legal-rational authority that is typical to bureaucracies and thus most relevant for this post.

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

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

A reader familiar with the subject matter 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 to which technology offers new and hopefully better ways of arriving. For the time being, these elements are either underdeveloped or less visible in blockchain network governance, although relevant in the open source software development process which requires separate analysis [ML: see my July, 2020 overview of best practices in traditional FOSS governance].

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 blockchain networks become recognized by and integrated into both traditional and emerging legal frameworks.

What’s bureaucratic about blockchains?

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 bureaucratic in essence 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 operate or utilize these networks, and the introduction of formal voting and dispute resolution mechanisms, among many others.

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

Coming back to the original question: what’s bureaucratic about blockchains? 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 suggests that protocol developers and network operators acknowledge the benefits of increased procedural clarity.

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 is sometimes also portrayed as a revolutionary general purpose technology, I think it’s more appropriate to view it as an outgrowth from and continuation of the information and communications 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 increasingly automated at birth. A new normal way of doing things, at least in areas uniquely enabled by ICT such as digital services and collaboration. And these ICT-native forms may end up looking quite 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 software and users have sovereignty over their personal data, there are still many reasons for being skeptical about the potential of blockchain networks to develop into systemically important 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 are currently engaging in a massive global data grab to fuel their ambitions of profit and control.

But regardless of which of these parallel developments prevails as dominant, should the users of these digital networks— and this will eventually include almost 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 many decades 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 still ongoing and has only been amplified by globalization and ICT. The ideas of big data, artificial intelligence, 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 and numbing to human creativity. Weber warned that these and other negative tendencies of bureaucratization could lead society towards a “polar night of icy darkness” — a rules-based society that traps individuals in a soulless and dehumanized “iron cage” of rational calculation and 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 remove human intermediation and subjectivity entirely from the administrative equation. Here, the potential convergence of blockchains and general artificial intelligence is particularly provocative as middlemen are replaced by increasingly autonomous middlemachines [ML: I’ve expanded on this concept in a January, 2022 post here].

Of course, for the time being, the results remain illusory — absolutely everything about blockchain networks and decentralized 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 human institutions. But it comes with some old, new, and yet unknown strings attached.

And, finally, 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.” While such an outcome is rare in actual practice, time will tell to what degree the Iron Law of Bureaucracy holds in the case of blockchain networks.

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 here.

[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 here.

[3] Weber, M. (1946). Politics as a Vocation. From H.H. Gerth and C. Wright Mills (eds.), From Max Weber: Essays in Sociology (pp. 77‐128). Oxford University Press. Available here.