Can Blockchain Maintain Spirit of Decentralization into 2019 and Beyond?
Those of us involved in the blockchain technology sphere have seen massive changes over the course of the last two years. In 2017, we experienced an explosion of growth as projects used token sales to fundraise fast, often with little more than a white paper to their names. The bubble burst in 2018, in part due to regulatory crack downs that suppressed development. The volatile public perception of blockchain technology and cryptocurrency valuations means speculating about the future has become somewhat of a favorite pastime. These forecasts are often related to token values. Has bitcoin hit bottom yet? Will 2019 be a year of massive growth? Beyond market-related predictions, the biggest question for me is, will blockchain projects maintain the spirit of decentralization and individual empowerment that drew many of us to the technology in the first place? If we are to accomplish this, there are technological challenges to surmount and opposing pressures to overcome.
What is “decentralization” and why does it matter?
A decentralized system spreads control across many entities as opposed to aggregating power in the hands of a single or few. Presently, the world of finance is highly centralized with assets stored and transferred by large, financial institutions. Bitcoin introduced a system that eliminated the need for these centralized financial institutions, enabling “online payments to be sent directly from one party to another,” or in a peer-to-peer (p2p) manner.
We’ve grown accustomed to intermediaries handling almost every significant transaction of value, from paying our Uber drivers to sharing pictures of our kids’ birthday parties online. Banks, apps, and social media platforms have all profited greatly from mediating transactions between individuals by charging transaction fees and/or selling data to advertisers.
What happened to the days of paying vendors directly for the products you are purchasing? The rise of the internet made it possible to interact with entities on the other side of the world and exchange value near-instantaneously. Most of us probably wouldn’t wish to return to barter systems in the town square, but have we sacrificed too much for convenience?
How can blockchain technology help?
The Financial Times refers to the practice of collecting and trading user data for profit as a “multibilion-dollar data brokerage industry.” But while Facebook, Google, and Amazon make millions off of the data provided by users, shouldn’t users benefit a little bit? It’s our data, after all. Blockchain technology allows for users to reclaim the value of their data and potentially benefit from sharing it.
While these giant technology companies continue to rake in enormous profits, a stagnant economy and growth of contract-based labor means the average person has fewer opportunities for income. Combine these factors with an ongoing government shutdown, a trade war with China, and irresponsible government spending, and it’s a wonder that Americans trust their government at all.
In the event of an economic downturn caused by devaluation of the US dollar, it’s possible that cryptocurrencies could offer an alternative. Not that crypto is the answer (that’s not the point), but isn’t it time we take control of our assets into our own hands? This is the conclusion many of us came to after the 2008 financial crisis when millions of people lost their investments due to poor lending practices executed by banks, which were then bailed out by the US treasury department.
Blockchain technology may offer avenues to reclaim some self-sovereignty from centralized intermediaries. But can this spirit of decentralization be retained in the face of regulatory uncertainty and the temptation of corporate profits? I certainly hope so, but a number of technological and perception issues will need to be overcome in the meantime.
MIT Technology Review’s Chain Letter by Mike Orcutt noted in the January 17th newsletter, “Ethereum may need to sacrifice some of its beloved ‘decentralization’ if it is ever to achieve its ambitious mission” of becoming a decentralized web 2.0, but the updates intended to build towards this vision have been repeatedly postponed. The most recent upgrade, Constantinople, was intended to improve efficiency by reducing transaction costs; however, part of the update involved reducing the reward that would be received by miners. Before the change could be implemented, members of the Ethereum community realized reducing minor incentives could result in many minors abdicating their roles and cause the centralization of mining power.
That’s the catch-22 facing the entire blockchain industry today: do we accept some centralization in order to increase efficiency? Ideally this is not an either/or decision. It’s my belief that the projects that commit to walking the tightrope between decentralization and efficiency (and maybe even develop solutions) will be the ones to pay attention to in the years to come.