Decentralization: a Watershed Moment in Business, Technology, Politics & Society

A watershed is a ridge of land separating waters that flow into two different bodies. A watershed moment is a pivotal point in time that marks a paradigm shift in the way we live.

We are currently living through a watershed moment that’s transforming the way business, technology, politics and society will operate for generations to come, perhaps forever.

It’s called decentralization — the notion that networks are less efficient when controlled from a central authority; laden with bottlenecks and prone to corruption.

A network could be a cluster of servers, an economy, a team of co-workers, a political party, a group of friends, a family — any interconnected group of people or things.

The concept of decentralization will disrupt the way we build and operate these networks. The simplest lens to understand how is through it’s looming impact in business.

Traditional business models have already shifted to markets and will shift to decentralized / distributed networks

How business networks have changed over time

For nearly the entirety of the 1900’s businesses could be classified as B2C, B2B and/or B2B2C — the traditional business models that we were all accustomed to and interacted with on a daily basis:

B2C

We went to the store to buy stuff. The store’s job was to pre-buy all of the stuff they anticipated us needing, along with some items we didn’t know we needed, and then to re-sell it to us. Online e-commerce has obviously changed this a bit — very few of us go to Sears anymore because we are buying our stuff on Sears.com. Right?…

The B2C model is where a centralized authority connects to us in a silo’d manner and pushes value at us. We need a good or service, they supply it, we buy it. We don’t interact with other consumers or providers as part of the relationship in the B2C model.

B2B

Businesses that sell to other business are known to be B2B. The model is not too different from B2C. One business provides value to another in the form of a good or service.

B2B2C

Business-to-Business-to-Consumer is where a business provides another business with the means to connect to consumers, but the connecting business owns the relationship. A non-ecom example of this would be direct sales or distribution model such as Mary Kay, where they supply sub-contractors with goods and materials to go and sell products directly to their own networks. Other examples include SaaS companies that provide online products that other business can use to manage their business and customers or even re-sell.

Again this network model, although expanded, isn’t much different than B2B or B2C. The flow of value and information is typically one-way.

In all 3 models, there is a central authority that owns the network and is responsible for it’s health and growth — making the decisions it thinks are best for its constituents. However, in the there is often a bias towards decisions that also benefit the goals of the CA itself.

Traditional businesses went online in the late 90’s through 2000’s and transformed their top lines by expanding their reach, but nothing really changed about the models.

Then they were disrupted by markets and sharing economies

These traditional models have been decimated in the last few years, especially in verticals like retail. Growth in market platforms and sharing economies that bring people together, enabling them to exchange value with each other directly are responsible — the kingpin being Amazon as they do both direct sale e-commerce AND act as a market platform for other vendors to sell. eBay and Etsy nurture similar but smaller market networks.

The sharing economy is a market economy. Airbnb and Uber are not too dissimilar from Amazon, except they facilitate the exchange of renewable services like renting a home or car rather than the consumed goods that Amazon and it’s merchants sell.

In either case the network dynamic is largely the same — the central authority sits in between buyers and sellers, makers and takers, and facilitates the discovery, transactions, and trust between the two sides.

As the CA they are responsible for making decisions that they view as being supportive to the growth of their network utilization and transaction volume. They also act as arbiter in case of any disputes between two parties on the network.

Now it’s the markets’ turn to be disrupted by decentralized networks

New market platforms have three inherent flaws:

First, centralized markets are expensive to use, often charging large percentage-based fees for transactions executed on their networks. In a decentralized network, participants are able to transact directly with each other in exchange for very small, typically fixed, transaction fees paid out to the nodes in the network that helped validate the transaction.

Second, in a centralized market or network the central authority controls the autonomy of the network. The company that owns the network is the only actor in it than can implement changes to improve it, acting as it’s own bottleneck and anchor. In a decentralized network, the nodes (people, businesses, etc) have distributed ownership of the network and often have the power to improve the conditions of the network for the betterment of all participants.

Third, the ability to trust other participants in a centralized market or network is governed by the central authority. Many centralized networks do this satisfactorily — eBay, for example, provides a decent feedback system that buyers and sellers can consult prior to executing a transaction with one another. However, these ratings can be manipulated quite easily. Yelp, TripAdvisor and others have all had the integrity of their trust layers questioned at some point. There are even SaaS platforms dedicated to gaming them. In a decentralized network all participants on the network have visibility into the trustworthiness of every other participant. Gaming the trust layer of a decentralized network is not possible without coercing the consensus of nodes to corroborate it, and arbitration is handled in real-time via programmed logic.

Why is this a watershed moment?

The converging technologies of blockchain and mobile computing are literally transferring old oligarchical power to the palm of your hand.

Before blockchain, we were reliant on central authorities to run our networks because we as participants were subject to the same bottleneck and corruption constraints as the central authorities themselves. We incentivized the CAs to act in good faith by voting with our dollars and doing business with the companies that upheld their reputations. With blockchains we have the ability to police ourselves and promote network activities that matter via new trust layers that we previously did not have access to.

Before mobile computing, we were reliant on central authorities to run the infrastructure for our networks as they were large and expensive. With the compute power contained in mobile phones everyone with one has the needed resources to participate in the soon-to-be ubiquitous decentralized web.

The promise of the internet was to educate and inform people from sources and at a rate which was never before possible, but it took 20+ years for the internet’s impact to begin to materialize. Blockchain has the ability to make good on the original promises of the internet: more efficient business, more collaborative tribes, more equitable financial service systems, more inclusive and representative political systems, and the inclusion of trust as an embedded component within every network.

In the last 5 years we’ve experienced a pace of innovation an order of magnitude higher than in the previous half-decade. With the decentralized computing space flush with cash and talent — I don’t think it will take even 2 years before we feel the daily impact of it. It will permeate through the way we transact with each other, make decisions with each other, communicate with each other and trust one another.