Common use of Governing Entity Clause in Contracts

Governing Entity. Some blockchain systems are governed by a legal entity, as is described in Section 5.2. This legal entity can be an existing company that acts as the linchpin of the ecosystem, such as Walmart for a supply chain blockchain implementation. The existing entity can also be a government agency (e.g.- the government of Venezuela). Sometimes a consortium is a blockchain’s governing body. Consortiums have been around for decades and are the entity of choice for creating industry technology standards such as Wi-Fi and Bluetooth. Blockchains can also be governed by a joint venture between participating companies. When there is a legal entity governing a blockchain, there are two levels of governance. At the highest level there is the entity’s board of directors which, in corporate law, has the ultimate decision-making power for the entity. The governing layer below the board of directors is the consensus node operators. Since consensus nodes are mostly operated by companies that are approved by, yet independent from, the blockchain’s governing entity there is often governance amongst the consensus nodes as well. The process of approving a transaction to be added to the chain is a governance process, albeit one that is often embedded in the blockchain’s software (the consensus protocol). The governing entity may require consensus node operators to contractually follow any decisions made by the board of directors as a condition of hosting a consensus node.