The internet was designed to be decentralized. The first era of the internet, from the 1980s to the 2000s was where decentralization largely flourished. Several web services came into being like Google, Yahoo… that were able to build their services and grow their presence knowing that, owing to a decentralized internet whose protocols were written and maintained by an open community of developers, the rules of the game wouldn’t change.
All that changed in the so-called 2nd era of the internet or Web2.0 when Google, Apple, Facebook and Amazon took over the reins from the open community and were successful because they were able to build and innovate at a much faster rate than them. With huge infusion of capital, they were able to attract the best talent or at least large pools of high-quality engineers and spit out services/products and gain notoriety at an unprecedented rate. We now get to enjoy services and products that have made our lives much simpler than in the Web1.0 days so why is this a problem?
- We are now left with far more centralized internet where you need or end up using a service from one of the above companies to put your own product/service out there and gain the necessary presence. The rules of the game are no longer in the hands of an open community but very large, for-profit corporations and are very much subject to change.
- Issues around bots helping win elections, fake news, GDPR requirement in Europe, private data mining, government-sponsored censorship are all a result of centralization.
- With time, the relationship of these services with their users and partners devolves from a positive-sum game to a zero-sum game. At the top of the s-curve, is where all the astounding benefits of using or dealing with the service vanish and the zero-sum assumes.
So how is decentralization an answer to all of this? The answer comes with the birth of Bitcoin and the advent of other decentralized crypto networks. Web3.0 with its advocacy of open source and use of cryptography-based consensus mechanisms means power can once again be redistributed among an open community but this time with incentives to make it worth their while.
We can now do away with any need for pure-play altruistic actors. People can participate in a decentralized network, own a piece of it, have a say in how it works and get paid in the process of doing so. Centralized systems no longer have an innovation free ride where they hire the best and own all the IP/data.
Token economics finds its roots in psychology studies aimed at increasing target behaviour and decreasing aberrant actions. It is the basis for ensuring actors in a decentralized network work in its best interest and arrive at a consensus which in turn leads to the network achieving its ends. Also, a token-based incentive is the only known and performant incentive mechanisms in decentralized systems.
In addition to this, a blockchain aids and abets in a decentralized network’s endeavour to be transparent. All data on a public blockchain is open and is a result of publicly known transactions with publicly verifiable outcomes.