Decentralization as an Anti-Monopoly Tool
Monopolies have existed since humanity developed commerce, and as such, the term is known.
Surely most of us have had a conversation about monopolies, and of course everyone (or most) understands the concept, which is concentration, or centralization, in the production or trade of goods and services.
What is the opposite? It is to deconcentrate, or decentralize. This last term was much less used years ago.
The importance given to the concept of decentralization is less than that of monopoly, but they are exactly opposite, and therefore should have the same relevance.
The word “decentralization” began to be used as a product of the French Revolution, since this meant a new stage in the French Government. The French Revolution took a giant step towards what is now called decentralization.
Decentralization was taken to a new level by activists in the 19th and 20th centuries, a group that called themselves libertarian anarchists, even at some point in history they called themselves decentralists.
The succession of different technological advances increases the capacity for decentralization, in the 21st century with the Internet, and recently with blockchain technology with its pioneering Bitcoin.
During the early era of the Internet, from the 1980s to the early 2000s, Internet services were in a ‘read-only’ format, based on open protocols that were controlled by the Internet community.
The second era of the Internet, known as web2, from the mid-2000s, had the format of social networks allowing user interaction. Tech companies like Google, Apple, Facebook, and Amazon emerged, creating software and services that quickly outgrew the capabilities of open protocols, concentrating power.
In opposition to this centralization, web3 was born, the second decade of 2000, the third generation of the Internet, where the concept of user ownership of their space on platforms and social networks appeared, providing the initial support for decentralization.
The information produced and distributed in networks using cryptography is defined as ‘Trusted Technology’. Where systems based on human trust cannot scale, Trusted Technology scales without limits, thus enabling decentralization.
The production of decentralized data avoids the censorship that exists in centralized systems, as its main characteristic of use.
The blockchain decentralization model is achieved with the production of distributed information among all the actors, nodes of the blockchain, that interact with each other. Information is integrated, its possession is distributed, and its production is decentralized.
Decentralization can be understood from the architecture, that is, how many physical computers make up a system, from the administrative policy, that is, how many participants control the system’s computers, or from the logic, that is, how the data structure is developed.
There are different network models, with different degrees of complexity. There are three basic models that are illustrated in the following graphic:
As you can see, the distributed network has the highest degree of decentralization possible, and this is how the blockchain is developed.
The change is coming with Distributed Ledger Technology (DLT), in the blockchain standard.
Societies are also configured in this way, and although there is a distribution of interaction, in the current cycle, the trend is towards concentration, both socially and economically, preventing decentralization, and that is why the search for this scheme is a constant effort.
Blockchain Decentralization Metrics
There is no single parameter of decentralization, nor individual values that indicate the ideal decentralization within each parameter. Decentralization is relative to one blockchain relative to others, or relative to itself over time.
So much so that the total decentralization of a blockchain cannot be defined, and therefore I believe, that it cannot be achieved.
Decentralization can be measured from different approaches, or parameters, some more important than others. I will mention some of them.
This is the most important metric. The production of blocks is executed by the network nodes (miners or validators), and directly related to the consensus protocol, which determines which node (only one) will sign the block.
Depending on the type of network consensus protocol, there are different roles within it, including those in charge of forging a new block, verifying the veracity of transactions and confirming the last block.
The greater the number of nodes and the greater the geographical dispersion, the more decentralized the network, since it will be more difficult for bad actors to collude to try to take control of the network, or for a centralized entity, such as a government, to censor the production of the blockchain. Here we have to consider the hosting of the nodes (relay) as part of the decentralization, and Amazon Web Services is one of the main providers that concentrates a large amount of blockchain service for nodes.
Networks are constantly updating. One of the undeniable strengths of a blockchain project is having a strong community of developers with the right skills and technical knowledge, as well as open source software.
The vast majority of networks have web repositories and forums where you can store the documentation, view the code, keep up to date with the development of new proposals, and participate in discussions for improvements.
Having a large community of developers, duly trained and distributed throughout the world, increases the decentralization of the network.
It is the total amount of cryptocurrencies issued by the network itself. Analyzing how they are distributed, in how many and who are their holders, becomes key. If a single person or entity owns a substantial amount of the currency, they could control the price of it at will.
When a significant percentage of the total tokens were previously issued, and remain in the hands of the creators of the network, this gives them relevant power, and thus degrees of decentralization are lost.
Although exchanges are not part of the blockchain, and therefore are not the most important aspect of those analyzed, they are necessary for adoption, since they provide liquidity and convenience for trading with fiat currencies and between cryptocurrencies.
The concentration of few exchanges is detrimental to decentralization.
What do users get with decentralization?
Here are some key benefits users get from decentralized systems:
— No need to trust a central authority that might be incompetent, vulnerable to attack, or even malicious.
— There is less censorship, since censoring traffic on a peer-to-peer network is much more difficult, because every packet can be sent to every other node on the network, and they will retransmit this data.
— Most of the applications on the net are open source. Anyone can copy part or all of the code and create their own applications with it.
— There are economic incentives for those who participate in the network, who are financially rewarded, providing sustainability.
Of course, decentralized networks also have their drawbacks: they are generally slower to develop than centralized ones, can be more expensive or less efficient at launch, and thus have a lower adoption rate. However, most users agree that the cost-benefit ratio is positive.
Independence and Personal Privacy. You are your data.
Digital independence is a loss of power over a central authority, since the users themselves have control of their data and their identities. Bringing this utility to the various areas of life and business will be a ‘game-changer’.
The concept of ownership should not be confused with the ownership of the online service subscription. Ownership is not simply access to a product or service. Ownership is about rights to freely dispose of both tangible and intangible assets.
Music, videos, software, and video games are already quite accessible through online stores. Using these virtual products is not real property, it is simply buying a temporary license, it is a rental.
NFTs are an interesting attempt to solve this problem, allowing the storage of digital goods, or the registration of ownership of material goods, on the block chain, which, together with smart contracts, allow a large number of uses of access and commerce.
Network users are owners of their personal information, and when they can share it as they choose, they have their independence from the decentralization of information, unlike data stored on a server, which is managed by a third party.
Asymmetric cryptography is the foundation of digital independence. P2P technology gave rise to the development of popular decentralized systems, where this digital property is applied.
Applications like Napster or BitTorrent allowed users to distribute information without a central authority. The lack of economic incentives to support these distributed solutions, which translates into a lack of sustainability and adoption, is one of the concepts that blockchain technology addresses.
Satoshi Nakamoto’s achievement through Bitcoin, which adds economic incentives to a decentralized P2P network, gave the necessary impetus and sustenance to the utility.
Thus, an interest in adoption was achieved, generating economic and financial markets for the development of personal independence.
Understanding decentralization as a tool to combat monopoly, both in the production of goods and services, and in trade, is key to being able to carry out the necessary adoption of blockchain developments with real utility.
Concentrated power, understood as centralized, always seeks to grow, never seeks self-regulation. Greater accumulation of power is detrimental to healthy ecosystems, since centralization tends to corrupt the components of each system.
The greatest adoption of blockchain technology, and the crypto industry, will come when the concept of decentralization is understood as the best possibility to develop fairer and freer societies, for the benefit of the majority of its members.