Back to basics: on the purpose of Decentralization

Share on telegram
Share on twitter
Share on reddit
Share on linkedin
Share on facebook
Share on whatsapp
Share on google
The purpose of Decentralization is to get rid of expensive middlemen entities Part 1 of 5 - Consensus IS Power series

Blockchain Basics

More than a decade has passed since the introduction of Bitcoin, Blockchains and the concept of Decentralization.

 

On this promise premise, a massive ecosystem and market have emerged. Blockchains and cryptos have achieved much, are a focus of worldwide attention, have grown exponentially in number & value, and have even breached into institutional debates. 

You've heard it before: Blockchain is "the future".

That is, unless you’ve been living under a rock. The hype is huge, and ever-more people want to get involved.

 

We also assume you’ve read about what blockchains are, and how they work, you’ve probably learned that each node’s ledger possesses the full breadth of transactions data of its associated blockchain, and participates in the verification of said data, through comparing it with the copies of other nodes, and that either tampering or error is prevented by the majority consensus.

 

These are not the topics of this series, for there’s plenty of that around; here we discuss (our opinion on) the “why’s“.

Why do people attribute value to decentralization?

There is a lot of confusion surrounding terminology in crypto, decentralization means different things to different parties:

 

A lot of people in crypto interpret a decentralization organization as a flat hierarchy, one where power is at least extremely diluted and in which the little guy can at least participate.

To end-Users it's an "Outcome"

For most, decentralized refers to an ideal organization in which power grabs and corruption are either very difficult or impossible because there are many participants verifying each other. Everything considered, it is a justifiable misconception, but it says more about the audience’s desires than actual reality.

To organizations, it's a "Feature"

But in the context of systems theory, a “decentralized system is one where no participant is explicitly has a specific role (and thus the authority that ensues), and each acts on local information. This means, “Decentralized” is not an outcome, it’s a feature.

 

As example, Bitcoin is “decentralized” as per the technical definition. However, a handful of powerful miners represent the vast majority of Bitcoin’s hashing power, and near all of its supply is cold stored off-chain by privates. This means, that should these critical nodes be compromised, your security and that of the whole network could be at risk.

Why this misconception is a problem

They’ve told you crypto is do-it-yourself finance without “the government”. That if “cash were invented today it’d be illegal”. And it is the truth. However, it’s the unspoken assumption that no oversight would be an improvement, that is madness.

 

Fact of the matter is that the vast majority of people worldwide have absolutely no means to protect their own interests against organized scammers & other assorted financial fraudsters without institutions; either lacking the expertise, the right to access transparent & correct information, or the time to fill the gaps, or more. 

Crypto, as is today, is comparable to financial anarchy.

And as was widely predictable (and predicted), this has resulted in an abundance of artificial scarcity schemes with no real purpose other than speculation. Aptly explained here:

“The problem lies in perverse incentive structures: let's say I was to hand out to you, either for free or a small nominal sum of FIAT, the equivalent of what could one day be millions worth of TechX tokens.

 

Would you immediately become: a) no more or no less receptive to TechX technological claims b) more receptive to TechX technological claims or c) become the biggest cheerleader for TechX at work, home, online and offline, and endlessly attempt to somehow convince otherwise non-technical people, including your long suffering family and friends, that TechX was the greatest thing since sliced bread?

 

What we're observing is a billion-dollar industry being developed where its ecosystem valuations rely solely around the notion of artificial scarcity, a scarcity entirely engineered by the very people most likely to benefit from said valuation!”

 

Blockchain Behind the Bullshit (’18) – Stephan Tual, former CCO of Ethereum

And truth be told, the more you look into it, the worse it gets.

True decentralization has not yet been delivered

Further, and perhaps even worse, if you want to get in on this exciting market of “decentralized assets”, you have no choice but to go through exchanges: allegedly “trusted” centralized intermediaries (usually operating from tax havens) – many of whom, have had a… let’s say, “eventful history”.

Why are we still reliant on centralized intermediaries?

Because centralization is better for all tasks, except for one: security, from both internal and external threats.

 

If someone told you decentralization is “cheaper, leaner, faster” somewhere along the way, it was at least out of context.  In fact, the opposite generally applies: decentralized exchanges are more expensive, slower and come with severe scalability issues, ceteris paribus (“all other things being equal”).

And that is without considering longer term issues, such as maintenance, security and legal liability:

Say, as example, you develop a hypothetical *perfectly* secure, fully decentralized and human-less solution. Then you raise $ 100 M in funding rounds. Who is responsible for maintaining it to prevent future attacks?

What if by 2025 the original team has left and gone on permanent vacation, and a new and entirely unpredictable type of cyber-attack successfully bankrupts said organization.

 

Then who is responsible for the money? Should investors be left to look out for themselves entirely on their own?

If it's such a mess, why is it allowed?

Authorities require problems to justify stepping in with their solution (= oversight legislation that says they’re in charge). Anything else is of marginal importance. (the “else” is the gravy train of insiders.)

Why do so many get involved? there must be something to it

Indeed. We also believe there is something to it. 

The hype is right, albeit for the wrong reasons: if you were to guess, out of 100 crypto enthusiasts, how many of them are in it “for the tech”, and how many for the profit opportunity?

 

It should be clear to all, that this whole “blockchain economy” is rooted in the widespread desire for new opportunities and the hope of better economic systems. To be designed for the benefit of the masses, rather than well-positioned insiders and mega corporations.

 

However, blockchains are just a tool, and as all tools, though designed for a purpose, its use depends on the wielder. 

What is the purpose of Blockchain?

“Blockchain has no other long-term 'raison d'être' but to take the utilities of the 21st century and place them back into the hands of the end users”

Blockchain Behind the Bullshit (’18) – Stephan Tual, former CCO of Ethereum

Bitcoin, and Blockchains, were introduced for the explicit purpose of removing the necessity of involving intermediaries for the purpose of verifying the validity of transactions (while preventing double spending).

 

Thus, at this point, the question you should ask is: 

Can Blockchain deliver on decentralization-as-an-outcome, as is intended by people?

Some say no. But we believe it can, and have made it our mission to deliver. 

We're building the 1st S-DEX (“Self-Decentralizing Exchange”) – a market intermediary using a custom blockchain solution to transition its own holding entity into a non-profit, over time. Why, you ask? 
To fulfill blockchains' true purpose: so that we can redirect platform generated revenue to our end-Users instead.

Lorenzo Ferrari | CryptoArena CEO Tweet

Leave a Reply

Lorenzo Ferrari

Lorenzo Ferrari is the Founder & CEO of CryptoArena.org, a fintech startup aiming to launch the first “Self-Decentralizing Exchange” – a secondary market intermediary using a custom blockchain solution to transition its own holding entity into a fully non-profit Foundation. 

CryptoArena distributes platform-generated revenue to its (active) Users through a game-like, social-competitive, points scoring system. Incrementally, over time, 

all the way to 100%.

Also read

Follow Us

Discover CryptoArena

Receive the latest news

Subscribe To Our Newsletter

Get notified about the lastest

find out about our tokens