Centralized or Decentralized? Free scale networks!
TLDR: I don’t believe blockchain will make markets more significantly decentralized and efficient than they are now
It seems to me there is always an ongoing discussion about whether systems should be more or less decentralized. Blockchain is responsible for many of these discussions right now, like the internet itself was a few decades ago.
Any system you can think of: money, the internet, political systems, a company, the food industry, public transportion… can be modeled as a network. At the end you always have people or objects (nodes) exchanging information (edges).
And you could measure how centralized is a network looking at its degree - how many connections each node has - distribution. Almost every network in nature is considered to be a “free scale network” and these networks follow a power law for their degree distribution. I think this is also reflected in the famous Zipf Law .
Power law distributions are by definition not very decentralized and from a human social justice perspective could be seen as a synonym of unfair or unequality. But for some reason, evolution and natural forces always end up making the most efficient systems following this pattern.
A very interesting question here is whether this high efficient systems always offer the best outcomes for the majority of the network? Well that’s a very very complex question beyond the scope of this post. In fact that’s the eternal battle between capitalism and communism - I love this book on that.
Data shows blockchain is already following power distributions and it’s just another free scale network.
Free scale networks are great because any two pair of nodes are connected in just a few degrees of separation. You can travel from any city of the world to another with no more than 1 or 2 connections, thanks to big airports like Frankfurt or Atlanta acting as huge hubs.
On the other side you can also claim that viruses can spread very fast or if a hub breaks the system could collapse. But looks like there are easy ways to overcome these problems to make scale free networks robust enough taking advantage of its own structure. We haven’t had any major global internet failure in a long time for instance…
I haven’t read enough about blockchain to have an strong opinion about how revolutionary it will be, but I find very confusing some of the claims I heard from people like Naval in his famous tweet storm and interview:
He is saying that markets (blockchains) will have their own currency - aka voting power to rule that market - that will only be obtained by your merit (participation) on that specific market:
But as we have seen before these blockchains or markets will almost for sure follow a power distribution (they already do), so there will be big contributors that will concentrate most of the power, right? Like the owners of this bitcoin mine in Mongolia? How is that so different and revolutionary from our current economical system?
I think the internet already has fantastic decentralized protocols and time has shown how centralized services ends up winning again. 5 years ago I would be writing this in my self-hosted blog, now we all write on Medium about how fantastic is blockchain and decentralization…
The part I totally buy is about its benefits to preserve people’ anonymity. And that could play a big role in resistance to censorship. Unfortunately the only real commercial applications so far have been to create fraudulent markets to buy guns, drugs and that kind of stuff…
I’m mainly writing this because I feel I might be missing something! So please write a comment or send me a reply if you feel I am not getting this… :-)