Bitcoin: Why should you decentralize?

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It is apparent to even a casual observer of Bitcoin design that the system is designed to be completely decentralized. Seeing the design, one cannot be blamed for assuming that the designers had an aversion to the concept of centralization itself. They probably had :).

A novice designer could have designed the blockchain storage to be centralized, with a “strong” server managing the centralized blockchain and all its operations so that the entire network can have easy access to a single source of truth. Similarly, the block building process itself could have been centralized to enforce standardization of the processes which will reduce the probability of having branches, thus making the overall blockchain building process less chaotic and more manageable. One can definitely argue that a central time server would have made activities like time check, enforcement of sequence of events etc. much easier to manage.

But the designers have chosen a decentralized, node-based approach for all of the above and virtually all the other areas. Blockchain isn’t stored at a central place — in fact each node in the network has a local copy of the entire blockchain. Block building (or mining) process isn’t done by any central authority, but is handled by each and every node. And you guessed it right, because of the way the blocks and the links between the blocks are designed, and with the enforcement of a ‘proof-of-work’ for each block, the need for a central time server is obliterated.

Bitcoin’s design of radically decentralized governance helps to build a robust and scalable system in more ways than one. There are some strong and valid technical reasons for embracing the decentralized approach. Let us examine them first.

  1. Avoid concentrated hacker attacks on a central server. Hacker attacks on the relatively big players like coin exchanges and wallet providers are a big concern in the current system. A fully centralized system would have been under constant attack.
  2. Build the system without investing a fortune on the giant server. Upgrading the system as the network and transactional volume increases will also be an arduous task.
  3. Takes away central points of failure.

While all of the above are important, there are some not so obvious but fundamental reasons behind the decentralized design, which probably are the ones which have made Bitcoin successful.

  1. Make trust redundant. Will you prefer to blindly trust someone or to verify and then trust? Once you verify, you don’t have to actually “trust”, because then you “know”. The governments, banks and our fiat currency system function the way they do because all the consumers trust the central authority — not because the central authority has earned that trust, but because it is authorized to bestow that trust upon itself. You can’t question the authority of your government to enforce a national currency on you. In case of Bitcoin, one has the option to verify each transaction that has happened ever. Nobody is forced to trust anybody else. The entire history is up for reach for anyone, the process to validate is well established and is easy to carry out. End result — “trust” which is so much central to the conventional system isn’t needed anymore in the Bitcoin system, opening up a whole new world of possibilities. This probably is the biggest contributing factor to Bitcoin’s usefulness.
  2. Takes away the possibility of a syndicate taking over control of the whole system. This is an extension of the previous point, wherein the design tries to ensure that an individual or a group with vested interests shouldn’t be in a position to control the fate of the currency system. This has two advantages — first is the obvious benefit that nobody will be able to misuse the system. In my view, the bigger advantage is that this also improves the credibility of the system in an indirect way. Each user of Bitcoin system is given the guarantee (through the design itself) that the system in which he/she is investing his/her money and time won’t be hijacked by vested interests.

PS: There is an interesting tangent to this argument wherein a number of critics argue that Bitcoin isn’t truly centralized because of the existence of pseudo-central agencies like exchanges, wallet providers etc., who have grown and become controlling players in their respective areas. Even though core Bitcoin is mostly decentralized, you can find pockets of centralized entities in the extended Bitcoin system. One can find a number of discussions where the Bitcoin enthusiasts counter this line of argument by explaining the differences between coercive centralization Vs market based centralization. In short, Bitcoin extended system has market driven coercion, which is optional and is a much better choice compared to the mandatory coercive centralization thrust up on the users by a controlling authority.

Takeaway: If you are designing a big system which has to drastically scale up, keep your design decentralized. Typically, the advantages far outweigh the cost of making the design decentralized. Invest in decentralizing, and it should pay off on its own.