Anyone who hasn’t been living under a rock has heard of Bitcoin. People have been debating for a long time about whether Bitcoin is “just a fad.” We don’t claim to be economists nor mind-readers. But what we will say is that many analysts are missing an important factor: that Bitcoin is just part of a larger revolution that hopes to completely liberate the internet.
What are we talking about? In one word: decentralization.
What is Decentralization?
By decentralization, we mean any situation in which the operation of a computer network is controlled not by a central authority, but by the community at large. Examples of decentralization are: Bitcoin and other cryptocurrencies, IPFS, and the BitTorrent protocol.
The word decentralized is often confused with the word distributed. A distributed system in one in which multiple computers share resources and computing power to accomplish a task. The key idea that separates decentralized from distributed is that decentralized systems are not controlled by a central authority (such as the owners of a server farm) and are instead self-regulating. Distributed systems can be centralized, but decentralized systems are always distributed.
Decentralized is also confused with the term peer-to-peer. Peer-to-peer (P2P) systems are distributed systems in which no node has more privilege than another. Networks usually must be peer-to-peer to be considered truly decentralized.
Decentralized systems must contain a mechanism for determining the true state of the system, in case a malicious actor attempts to tamper with it. Bitcoin uses the blockchain data structure to achieve this; it is essentially a tamper-proof ledger and the persons who record transactions the quickest are assumed to know the true state of the system. The true state of the system can also be determined through voting and consensus.
So why do we think decentralization is the future. In short, it gives power to the people!
History of Decentralization
Before we go into the benefits of decentralization, it would be helpful to go over some examples.
The Early Days
In 1980, the decentralized discussion platform Usenet was launched. Users could read and post messages to categories known as newsgroups. These newsgroups were hosted on a variety of servers, usually owned by internet service providers (ISPs). Usenet is a direct precursor to the internet forums we know today.
Many social apps (Mastodon, PeerTube, etc.) have been developed in a similar vein to Usenet, and together comprise an entire ecosystem of decentralized social apps known as the Fediverse.
In 1999, the peer-to-peer music sharing platform Napster was released. Reaching its peak in 2001, it was faced with a number of lawsuits because it facilitated the sharing of pirated materials. In mid 2001, it was forced to shut down its entire network and has since been rebranded as a music store and a music streaming service.
In 2001, the decentralized file sharing protocol known as BitTorrent was released. When a file is added to the BitTorrent network, it is split into pieces and distributed across multiple computers on the network. A client wanting to download the file would retrieve all of the pieces and reassemble them. Like Napster, BitTorrent is infamous as a platform for sharing pirated media, but continues to survive for this day.
The difference is that unlike Napster, the BitTorrent protocol is entirely decentralized and cannot be shut down by a single authority. To destroy BitTorrent would be to ban all BitTorrent clients available on the web, of which there are many. Contrast this to Napster, which had a single, proprietary client. If Napster was not a for-profit and made its client open-source, perhaps it would exist today.
In 2008, a person or group of people known only by the pen name Satoshi Nakamoto released the original paper for Bitcoin. In it they describe a digital currency in which transactions are recorded in a tamper-proof ledger known as a blockchain.
Everyone on the network has a copy of the blockchain. Like we discussed earlier, the “correct” version of the ledger belongs to the user that can record and verify transactions the fastest. This process is called mining. Miners are rewarded in Bitcoin; this is how Bitcoin is introduced into the economy. Every 210,000, the reward for mining is cut in half, so there is technically a finite supply of Bitcoin.
Bitcoin is what really pushed decentralization into the mainstream. There is an estimated 200 million Bitcoin wallets in existence. As of writing this article, a single Bitcoin costs about $32,000. Special computer parts have been developed for the purpose of mining.
Ethereum is the most popular cryptocurrency behind Bitcoin, but what it offers is much more than a digital currency.
Going live in 2015, Ethereum introduced an innovation that elevated crypto to the realm of traditional finance: smart contracts. These contracts were self-executing code that, like normal transactions, were recorded on chain and thus were binding and tamper-proof.
What Ethereum introduced was the ability express concepts like loans and interest in the form of its smart contracts, making it as powerful as traditional currency. All of the instruments of traditional finance could be reinvented, forming an ecosystem of DeFi (Decentralized Finance) applications. Smart contracts could also be used to write entire applications on chain, known as Dapps.
Finally, Ethereum introduced Non-Fungible Tokens (NFTs), which are individual units of data stored on chain, used to certify the uniqueness of a digital asset (photos, music, video game items, etc.). NFT’s have most famously been used for selling original pieces of digital art. In 2020, a series of works by the artist Mike Winkelmann called “Everyday — The First 500 Days,” was auctioned in the form of an NFT for 69 million dollars.
Decentralized Storage (IPFS, Storj, FileCoin, etc.)
If you follow tech news, you’ve probably read about a government or mega-corporation whose records were leaked by hackers.
Decentralized storage protocols provide a number of security benefits over traditional cloud storage providers. These protocols tend to encrypt, split up and distribute files in a similar manner to BitTorrent, so workstations hosting your files are unable to view them. They are also fault-tolerant in that a single compromised node does not bring down the entire system. Finally, these protocols store files redundantly such that lost data can be easily recovered.
IPFS is special in that it is not just a storage system but an entirely decentralized version of the web. IPFS is able to host web pages that can be accessed through your browser. IPFS already hosts search engines, messaging platforms, crypto wallets, databases, and more….
The Case for Decentralization
The beauty of decentralization is that means independence from Big Tech, governments and financial institutions. It means the ability to communicate and exchange assets without any middlemen. It means the ability to speak freely without fear of censorship.
Let’s start with the issue of censorship. Consider a person living under a repressive regime who wants to speak out against the government. If he uses a state-approved social media app, his communications will be monitored and censored, and he will possibly face legal consequences. What if he uses a decentralized social app like Mastodon? His posts won’t be in the hands of the government, but in a server belonging to a gracious individual. What if the government finds who is operating the server and forces it to shut down? He can use a serverless, blockchain-based app instead of a federated one.
The point is that decentralization makes the internet un-censorable. There are plenty of “alternative” social media apps (Parler, Gab, etc.) that claim to stand for free speech, but can they really be trusted if they aren’t decentralized? Keep in mind that it’s not just the social media company that controls what appears on the app; it’s also the server owner, the government, and the app store operator in the case of mobile apps. The iPhone version of Parler now censors hate speech so it can appear on Apple’s App Store, for example. (We are not condoning the use of hate speech. We are simply stating that no centralized app can be trusted to protect it, along with more benign speech.)
This brings us to the biggest controversy surrounding decentralized networks: what is there to prevent illegal content from being uploaded? In the case of federated social media apps, the server owners are in charge of moderation, but what about serverless models like IPFS? The truth is that there is no easy answer. Consensus can be used to determine who is allowed to post, but if existing social media is anything to go by, “upvote” systems can be abused.
While illegal content is a legitimate concern, we personally don’t see this as a reason to shun decentralization entirely. If worse comes to worst (keep in mind we’re talking about very new technology), the centralized and decentralized web will coexist in a similar fashion to the “surface” web and the “dark” web. But we don’t believe that this will happen. A more likely scenario is that server-based protocols will simply overtake serverless ones in popularity. Just like the “normal” web, there will be sanitized and un-sanitized places to accommodate all kinds of users.
Let’s move onto cryptocurrency. Crypto has essentially ushered in a new economy free from the influence of banks and financial regulations. Middle-men have been completely cut out of the equation and the money supply is controlled by a fixed algorithm. The result is the pinnacle of free trade.
Why is this a good thing? It lowers the barrier of entry into finance. It can be used to bypass economic sanctions. It offers an alternative currency for countries suffering inflation. There are lower transaction costs. A limited money supply means it can’t be devalued.
Of course, there are many concerns surrounding crypto, some more legitimate than others. Skeptics have pointed out crypto’s volatility, the environmental effects of mining, the prevalence of scams and criminal activity, the fact that private keys can still be stolen, the fact the governments are already cracking down on it….
We won’t go over all of these issues right now (perhaps in another article). We admit that crypto in its current state is in need of improvement. But there is no reason to assume that none of these holes will be patched up. Blockchains are already being developed to reduce energy consumption and improve security and scalability. Because of decentralization’s rise in popularity, there’s no reason to believe that the cryptocurrencies of tomorrow will be identical to Bitcoin or Ethereum.
We’ve discussed two major use cases for decentralization in the section above, but the possibilities are truly endless. There is decentralized voting, gaming, gambling, databases, etc. etc., all free from government and corporate oversight for the most part. Decentralization is a way to bypass the various inconveniences and restrictions that limit our freedom and keep us from interacting directly. We will go into even more detail on decentralization in future articles.
Like we said at the beginning of the article, we are not economists. We’re not here to tell you that decentralized software will make you a millionaire (although we have no obvious reason to believe otherwise). We are interested in decentralization because of the undeniable humanitarian benefits which we believe are catching on!
SafeHouse believes in the mission of decentralization and hopes to use it to protect small businesses. If you enjoyed what you read, consider checking us out at https://safehouse.dev/.