The Centralization Paradox Limiting DAOs
Why the Tools Shaping Decentralization Need a Better Foundry
When the concept of blockchain decentralization pops up, it refers to the fact that blockchains are run (or should be run) by a large cohort of independent people who do so without a central control system or authority. Most blockchain advocates believe that the same principle applies (or should apply) to every one of blockchain’s offshoot activities — for example DeFi, DAOs, and dApps.
However, many of the tools currently considered essential in DAOs are powered by centralized servers, so it’s fair to say that decentralization has a long way to go.
The idea of complete decentralization is akin to — or in fact continues beyond — Lincoln’s vision for democratic government: that it be “of the people, by the people, and for the people”. Ideally, in a decentralized system, central bodies/authorities are entirely absent. Alas, as is the way the world so often works, there’s a deviation between the ideal and the norm. The current crop of DAO tools reflects this deviation and thus undermines the actualization of fully decentralized organizations.
Since DAOs operate closely with blockchains, we’ll explore what blockchain decentralization means and how DAOs operate. We’ll then check out how the centralization of our tools affects DAO operations and see if there’s any way out of this dilemma.
Blockchain Decentralization Refresher
Let’s take a short trip down memory lane to the global financial crisis of 2008. The events of that period shattered the faith of many in the traditional banking structure, forming an almost-perfect launchpad for a solution operating on a decentralized, peer-to-peer basis. Those events were the birth throes of today’s blockchain.
The goal was to build a financial structure that would work independently of any central control. Many people would operate the nodes of the network without a hierarchy, verifying transactions and ensuring the blockchain’s security. Users wouldn’t have to trust one another because the system uses cryptographic processes to validate authenticity. This is the foundation on which blockchain decentralization is built. All these fundamentals comprise blockchain decentralization principles — open-source operations, transparency, and self-ownership.
DAOs Are Key to Achieving a Decentralized Web
As the name suggests, decentralized autonomous organizations are organizations which eschew central management or a traditional hierarchical structure. To varying degrees, operations proceed in accordance with smart contracts stored on a blockchain. These contracts are publicly viewable and organizational decisions are reached through on-chain or off-chain voting.
The decentralized web: web3, as it is known, aims to revolutionize the internet. The strategy is to retire the old ways of a central system and give power to the people. Accordingly, many DAOs hope to create a worldwide democratic community which incorporates the benefits of blockchain technology into shared decision making. The power to steer the direction of the DAO resides with every participant holding the DAO’s governance token, and these participants retain ownership of their data and privacy in the community.
DAOs are creating the structures of governance in the web3 space. These foundational blocks laid by DAOs — and the extent of DAO decentralization — will impact the full realization of web3. But how do we gauge the level of decentralization of these organizations? One possible path is to analyze the software and tools many DAOs use, to see how these tools influence their decision-making processes and general operations.
Software Used For Day-to-Day DAO Operations
Aside from smart contracts, other software are used for daily operations. These tools are essential for management, communication, and documentation of activities in the organization. Here is a rundown of these tools according to their categories.
Communication Tools
Discord: This is the primary communication tool at many DAOs. It offers audio, video, and chat options. Discord bots can restrict access to certain channels in the Discord server based on users’ token holdings and other parameters.
Telegram: DAOs make use of Telegram’s polling tools and other available bots to carry out their activities.
Twitter: DAOs use Twitter and other social media like Facebook and YouTube to publicize their activities.
Management Tools
Snapshot: This is a governance tool that enables ‘gasless voting’ processes i.e. various strategies can be implemented for token-weighted voting but there are no on-chain transactions. Discourse, Commonwealth, and Tally are other similar governance platforms which may connect with wallets and/or Discord for verification.
Coordinape: DAO contributors use this allocation tool to compensate one another using the DAO’s governance token. Coordinape makes the distribution of rewards seamless and specific.
Collab.Land: This Discord bot reads users’ Ethereum wallets for the number of governance tokens in a given wallet and assigns or removes roles based on the amount of the DAO’s token held.
Project Management and Publishing Tools
Notion: This is a document and database workspace used by DAOs for project management, record keeping, and information sharing.
Medium: Many DAOs use Medium for publishing newsletters and other written content. Other options in use include Substack and Paragraph.
Google Drive: This is another storage and project management tool, though it does not provide a shared workspace the way Notion does.
Centralized Software in Decentralized Communities
Let’s remind ourselves that today’s internet data goes through centralized networks before reaching our devices. These centralized systems provide server and web hosting services, without which internet connectivity is not possible.
Some of the big names in this industry include Amazon, Microsoft, and Google. Today, Amazon controls 34% of the entire cloud network. In other words, over one-third of the entire internet rests on the shoulders of this tech giant. This makes it the largest cloud network provider in the world, far ahead of its biggest competitors. What happens if Amazon Web Services (AWS) decides to pull the plug today?
Chart showing the market share of top cloud-hosting providers. Source: Statistica
Are DAOs Dependent on These Centralized Systems?
All this centrally-provided software shouldn’t be a problem for DAOs, right? Besides, DAOs use blockchains, and these blockchains ought to be decentralized. Well, this is where things become dicey. Here’s the fact: blockchains also need web hosting to function, otherwise; they remain a piece of offline software.
Full decentralization of the blockchain network would see hosted nodes operate across many discrete locations without a central authority. However, current stats reveal that centralized servers host 62% of the entire Ethereum network. About 66% of these hosted nodes are on AWS alone. The stats for the distribution of the Bitcoin network shows that Bitcoin nodes are a bit more decentralized.
Distribution of the Ethereum nodes currently on hosted servers. Source: ethernodes
Aside from the issue of blockchain decentralization, many of the essential tools employed at DAOs are run by centralized companies. Discord, the primary channel of communication, is a centralized application; the same goes for Telegram, Notion, Google Drive, and many other DAO tools. While developers can come up with decentralized alternatives to much of this software, DAOs may struggle to survive without some others.
How Centralized Systems Can Affect DAO Operations
Two keywords define DAOs — Decentralized and Autonomous. These principles must be upheld to the letter for DAOs to live up to their definition. If today’s DAOs depend on centralized software for key operations, achieving full decentralization and autonomy will require extra effort, if not be impossible.
Government regulations or policy changes by these centralized providers could destabilize DAO operations. What happens if there is a service outage or hack on these central systems? DAOs seem powerless in case of disruptions on these networks. This contradicts the core values upon which DAOs are established.
Can DAOs Be Totally Independent?
Even though it seems like a tough row to hoe, DAOs need to carve out a way to be free of centralization. This independence is necessary; it strongly determines the actualization of the decentralized web. Although breaking off from the centralization of web2 systems is a gradual process, luckily, there are several budding and existing alternatives.
Decentralized Websites
With the combined use of the Ethereum Name Service (ENS) and the InterPlanetary File System (IPFS), running a decentralized website is a reality. ENS is the decentralized form of the regular domain name service, while the IPFS offers decentralized hosting. With these, websites can shift from being hosted on centralized servers to decentralized systems.
The following are some existing decentralized website alternatives that can potentially replace current web2 options; some of them use the IPFS+ENS setup while others use other blockchain solutions to achieve decentralized operations:
Mirror.xyz: This is a blockchain-based publishing platform that is more like the web3 version of Medium. Mirror.xyz gives content creators the power to connect directly to their audience and monetize their work in a way that best suits them. Another publishing platform like this is Sigle.
Wonderverse: Web3 project management is what Wonderverse offers. The platform is specially targeted at making project management as smooth as possible for DAOs. It is a potential replacement for centralized options like Notion. Other alternatives like this are Dework and Kleoverse.
Presearch: Presearch is one of several decentralized search engines that hopes to become the Google of the web3 space. Similar decentralized search engines include Humbl, Pearl — B 3.0, and search.n.xyz.
Other decentralized options include web3 email services like Mailchain and LedgerMail; professional networks like Kleoverse and Meritverse; and remote work platforms like Ethlance and heymate.
Decentralized Applications (dApps)
These are applications built on the blockchain; they operate using smart contracts. Users can access these dApps in their browsers using certain crypto wallets. DApps provide alternatives to traditional web apps in messaging, finance, social media, gaming, and many other sectors.
For instance, Lens Protocol is helping to build a web3 social graph and serves as the launch pad for several decentralized social media apps. Another like this is DeSo, a social media-based Layer 1 blockchain for building social networks in the web3 space. These dApps can serve as the Twitter and Instagram of web3, making way for fully decentralized operations. Top examples of web3 social media apps are:
Lenster: Lenster is a decentralized social media app that is built on Lens Protocol. Users can share written and visual content just like they would on Instagram and other popular social media applications.
Diamond: This is a web3 social media app that looks just like Twitter. Diamond comes with a whole lot of crypto-native features built in and is run on the Deso blockchain.
Phaver: Another social media platform running on Lens Protocol; Phaver offers a share-to-earn social platform where users earn incentives — in the form of crypto tokens — for sharing content.
Mastodon: This decentralized social platform came into limelight after Elon Musk’s takeover of Twitter; people were looking for options and Mastodon seemed to pique the interest of many. While Mastodon operates differently from Twitter in many ways, it is a potential web3 version of the microblogging site.
Other examples include Outgrid, Steemit, Akasha Reloaded, Status.im, and OpenChat.
Decentralized Cloud Storage
Decentralized alternatives for cloud storage are web3 solutions that are already available. They allow for the storage and sharing of information on a decentralized network instead of the regular trust in centralized options. Here are some top examples:
Storj: Storj taps into blockchain technology to provide a truly decentralized alternative to cloud storage. The platform uses sharding techniques to store data across several computer nodes while ensuring that only data owners have access to their files.
Arweave: This is another web3 protocol that offers decentralized storage of data. Arweave claims to offer permanent storage of data as they build a “global community-owned web that anyone can contribute to or get paid to maintain”.
Other examples include Filecoin, Datum, and Sia.
Drifting From Centralization
Even though many of these decentralized alternatives are yet to gain massive adoption, being still in their infancy in terms of user experience and scalability, they have the potential to replace many existing centralized options. DAOs should begin to look into diversifying their operations into many of these options.
While DAOs may not be ready to move all operations into these alternatives in an instant, they can begin to gradually explore these options to further foster decentralized approaches. Perhaps DAOs can begin to use less of Notion and explore more web3-native project management tools like Wonderverse and Dework, make use of messaging and social media alternatives like Mastodon and OpenChat, use more of Mirror and Sigle for publishing content, and try out decentralized cloud storage options like Storj and Filecoin.
These open-source and permissionless platforms do not rely on a single central source, reducing the risk of a single point of failure. As a result they are also more resistant to government restrictions and censorship.
Lingering Issues
Searching out and diversifying into decentralized tooling alternatives are important steps toward achieving full decentralization at DAOs. However, one major obstacle to complete decentralization remains the increasing geographic centralization of blockchains like Ethereum.
The harder it is for validators to authenticate transactions on a blockchain, the more resources it will require. The more resources it requires, the fewer validators are available. This limits the network to the big players in the industry, steering the course toward centralization, and creating a major web3 problem.
Final Thoughts
DAOs are key players in web3. They are the foundation of governance in the decentralized web. However, attaining complete decentralization and autonomy requires more effort. It is also obvious this isn’t only about finding decentralized alternatives to current centralized DAO tools. Much more, there must be standards to ensure that the blockchain — which is the backbone of DAOs — is not drifting toward centralization. If we can get these things right early, the actualization of the fully decentralized web may not be as far away as it seems. Failure will see us remain in the shadows of centralization and pseudo-decentralization.
Author Bio
Kornekt is a writer and editor with strong conviction in the world Web3 creates.
Editor Bio
Trewkat is a writer and editor at BanklessDAO. She’s interested in learning as much as possible about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.
kalex1138.eth
Designer Bio
ab_colours is a versatile designer with over seven years of experience. He specializes in doing product design, UX design and brand identity. He has been DAOing for the past eight months and has been able to amass quite a lot of knowledge about the fascinating blockchain space.
BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.
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