Decentralization is the Essence of Blockchain

By Hitters Xu, Nebulas Founder & CEO

Undoubtedly, blockchain has become a subject of great interest and a field of booming innovations. Aside from many bitcoin geeks and pioneering groups, recently more and more financial organizations have become deeply involved.

I will talk about my thoughts about decentralization, which I believe is the soul of blockchain, in this article.

1. Decentralization, The Outcome of a Distrust Mechanism

When designing bitcoin, Nakamoto used the consensus between nodes, which is a non-trust mechanism, to prevent problems generated by a centralized system.

The higher the number of nodes that confirm a transaction, the smaller the risk of a multiple payment problem becomes. In a non-trust mechanism, all nodes are equal, and there is no privilege.

What’s more, the bitcoin system will have its own credit value after the ledger transaction is confirmed by a sufficient number of nodes. Starting from the non-trust mechanism, Nakamoto inadvertently stumbled upon the idea of decentralization.

Substantially, Blockchain is a combination of technologies, including asymmetric encryption, point-to-point network, blockchain data structures and so on. Generally speaking, decentralization is a superset of non-trust mechanisms.

2. The Game of Gamble, a Result of Decentralization

For Bitcoin, there’s a continuous and dynamic game of gamble between users, miners, and developers.

By using the POW mechanism, miners are much more motivated to maintain the system better and record the transactions. By having an open source community, developers’ jobs are better supervised and standardized. By setting up a voluntary transaction fee submission function, users can more efficiently use the bitcoin.

Instead of Bitcoin’s immature network and inadequate processing power, whether the system can support an equal game and an unprivileged structure is what makes this game of battle differs from the traditional systems. If it is a privileged structure, even a bit of special rights can destroy the game’s structure, making the system centralized again.

This happens because people used these rights for their private good in a more efficient way, and it’s usually a destructive way for the system.

With no clear responsibility, special rights are associated with the interests of a few and are very difficult to restrain. The DAO project that once made a splash, financing more than 100 million dollars, failed mostly because the participants chose to escape from their duty and focused on instant profits too much.

3. Blockchain, an Open Source Use Case

If we see blockchain as a decentralized, non-trust, game-based system, its application should be an open source user case. To be more specific, blockchain should be open source first on data, then on consensus.

The true beauty of blockchain lies in decentralization, which is an open source data storage and processing ability that’s based on a consensus mechanism. Almost all consortium blockchains and private blockchains are at some level not open-sourced on data or consensus, this is what happens when the system provides privileges, the further impact of which is yet to be seen.

Once again, I have to mention bitcoin. At some level, Bitcoin is the first example of blockchain’s application. As it is essentially a simple ledger, it has a fixed, simple input-output format, similar to accounting.

But I do not think all blockchains will have such simple structures in the future, because we have to deal with the following issues to make the blockchain a success.

The first problem is input and output. We will face more situations and variables in various more complicated scenarios. In fact, a “smart contract” is just an input / output mechanism with judgment conditions. Once the input source and content become more complex and diverse, it has to deal with more complex game situations.

The second one is the problem of data storage and processing. At present, Bitcoin generates approximately 1M of blocks every 10 minutes, and the average transaction-processing ability per second is still in single digits. Even though, the total ledger storage still exceeds 80G. It is almost impossible to store all the data inside the chain if we want to develop the blockchain further.

We have to create something similar to a blockchain data center to store out-of-chain data through side chain verification. At the same time, due to the limitations of node devices, network bandwidth, and consensus mechanisms, the current processing capability is far from sufficient. It can not deal with the volume of data fast enough.

I had been working at Google’s Search & Anti-Fraud team for many years. I always stopped and wondered can a platform still do evil if all the advertising information is no longer confined to one company, but protected by an open data system under the privacy protection mechanism and watched over by all users?

It will be so wonderful if the group’s ‘consensus power’ POW can be further used to solve problems like ‘click fraud’ that have plagued the advertisement systems for years.

Compared with other technologies, blockchain technology is so enchanting. It has attracted a lot of participants, from early-stage geeks to financial experts nowadays. An important reason behind that is blockchain technology has a soul.

This soul or a guiding ideology is decentralization, also called liberalism or Austrian economics. It is indeed exciting, for it has the potential to subvert the existing system and innovate. At the same time, it also encourages everyone to boldly explore new areas, use theories to guide practice and make breakthroughs, to lay a solid foundation for the rapid development and progress of blockchain.

Wrote by Hitters Xu
Founder & CEO of Nebulas, Founder of AntShares (NEO), a blockchain pioneer in China, the former Director of Ant Financial’s Blockchain Platform (Alibaba’s financial arm) and part of Google’s Search & Anti-Fraud team. Since 2013, Hitters has founded BitsClub(the very first Blockchain/Bitcoin community in China), ICO365 (one of the largest ICO platforms) and FBG Capital (one of the earliest Crypto funds).
Translated & Edited by Alicia Zhong
The original Chinese version of this article was first published on China Financial Herald №66.