We hear the word thrown around all the time in the crypto space but what does ‘decentralised’ really mean? Matthew Aaron had the chance to sit down and talk with Allen Hena in this episode of CRYPTO 101.
Who is Allen Hena
Allen operates as a crypto consultant and heads up the DARC network (Digital Asset and Research Analytics). He currently lives in Pittsburgh but was born in Kiev Ukraine to a Ukrainian mother and a Liberian father. After 3 years the family moved to West Africa and lived there for another 3 years before moving to Dayton Ohio. In September of 2017 he dropped everything while looking at crypto and thought to himself ‘I am doing this full-time’.
What is Decentralisation?
Below is a diagram that Allen has put together to better describe decentralisation.
The first thing to notice is that the terms ‘centralisation’ and ‘decentralisation’ are not binary. Allen points this out, it is more of a spectrum. Secondly, there is no clear-cut good and bad side to different levels of centralisation — it is always context-dependent.
Let’s now take a look at the four main sections identified in the diagram.
“Probably 90% of the time when people are saying that something is centralised, they are thinking about ‘who is securing the network?’, ‘Who is running the network?’”
This can refer to nodes, validators, even miners. Again, it is contextual. Bitcoin is widely considered to be decentralised but five mining pools occupy the bulk of the hashing power securing the network. On the flip side, many people criticise EOS for being too centralised because they only have 21 validating nodes. 21 is a larger number than 5. This raises the question of ‘how should we measure decentralisation?’
“Network Operations is all about the actual running of the network, securing of the network from a technical perspective.”
Jackson Palmer of Dogecoin and Youtube fame has set up a helpful website called AreWeDecentralisedYet? that allows visitors to monitor just how decentralised (in terms of network operations) different blockchain projects really are, check it out.
This one is all about the diversity of the team developing, maintaining and promoting the crypto project — both in terms of diversity and multiplicity of the people within those subsections and the overall health of the subjections as a whole. Developers alone cannot deliver all of the things a successful startup crypto project needs to be successful. Allen argues that a crypto project cannot be successful at nascent time points without business-minded people, marketing-minded people, designers, advocates etc.. However, Bitcoin has succeeded without any of those things, predominantly off the back of their wide network distribution already. Bitcoin may be the exception to the rule.
“It’s not necessarily that the team will answer questions for you, I actually think it’s better when a member of the community answers your question for you. That’s not to say it’s going to be the most accurate, but what that tells you is that someone is sitting and watching and knows enough about the project [that they want to help].”
Two main points here are coin distribution and coin availability.
First, with coin distribution:
“For any wallet or any address on a cryptocurrency network, you should be able to see how many coins are in that network. What you really want to do for coin distribution is you want to understand what percentage of the coins are locked up in the top 5, 10, 20 percent of wallets.”
A more distributed coin tally will lend itself to a more decentralised economy within that cryptocurrency.
Second, with coin availability:
Healthy coin availability lends itself to a healthy coin distribution. If there are multiple places that trade and offer the coin then there are multiple points of entry for new members as well as multiple points of distribution/holding that prevent the risk of a simple centralised attack on a currency should it only have one or two places where it is offered.
Here is a clear example of how centralisation is not a binary good/bad question. When a cryptocurrency is getting off the ground, and even in its later stages as it is being maintained by a community, it is important to still have structure.
“If you don't have any formal method for proposition decisions and making decisions, that’s just food fight governance. That’s basically a bunch of yelling and screaming, hash power throwing that you find in the crypto space right now.”
Two main types of governance concerning cryptocurrencies would be on-chain and off-chain governance. On-chain is where the actual programming of the currency has formulas built-in that allow the currency to change and adapt with the community’s needs internally — this is arguably a more decentralised model of governance. Alternatively, off-chain governance is perhaps a more centralised option whereby a central team of developers program changes based on community consultation and demands.
The issue of cryptocurrency decentralisation is far from black and white. There are various reasons to lean more centralised or decentralised depending on what area we are discussions (whether it be network, team, community or governance) as well as the context of the issue in question.
Typically the conversation involves finding out how centrlaised the securing of the network is — through miners, nodes or whichever method the currency uses. However, many other factors, as we have seen, come in to play.
“If you look at what crypto is really about, it is a decentralised way for people to establish value with each other.”
Allen Hena is upfront that the diagram all this conversation is based off is a work in progress and invites anyone who wants to contribute constructively to get in touch with him to continue the conversation. Be sure to check out this fascinating podcast for more on the issue of decentralisation.