Exploring the Impossibility of Decentralization

Exploring the Impossibility of Decentralization

This article is initially published in Albaron Ventures.

Grade school might tell you anything is possible. Complete and total decentralization, however, is not– at least sustainably. 

The premise that decentralization is impossible hinges on the fact that decentralization “experiments” such as Bitcoin have approached degrees of centralization.

Exploring the Impossibility of Decentralization

For example, Bitcoin’s Proof-of-Work (PoW) mechanism relies on many nodes to “mine” or verify and facilitate transactions. These miners have rewarded a portion of transaction fees and a shot at winning the Bitcoin block reward, currently 12.5 bitcoins or about $115,000– a not insignificant prize dished out about 144 times daily

This has incentivized the creation of “mining pools,” or a collection of nodes that work together and divide the prize among the operators. Unfortunately, mining pools have taken what would otherwise be a decentralized utopia and coalesced a degree of centralization. The current state of Bitcoin mining is far from a single entity controlling the trading network with a 51% lion’s share, but it still highlights the downfalls of decentralization. 

Bitcoin’s Proof-of-Work (PoW)

Exploring the Impossibility of Decentralization

Some cryptocurrencies utilize different consensus mechanisms, such as Proof-of-Stake and Delegated-Proof-of-Stake, and they address some of Bitcoin’s drawbacks (such as high energy costs to mine). However, they still leave the glaring decentralization issue. 

A fundamental concept is that Bitcoin, a network with no single party dictating its future, has gravitated towards centralization. Of course, centralized entities may receive some flak in the cryptocurrency and blockchain community. Still, they can at least enforce and control certain elements, a task nearly impossible for a theoretical, fully decentralized entity. 

Do we need complete decentralization? – Exploring the Impossibility of Decentralization

The core tenet of decentralization, at least among the common blockchain ethos, is that decentralization insulates the network from tyranny and corruption. Unfortunately, this duo has plagued human governance and economics since the dawn of organized civilization. 

The same concepts that power Adam Smith’s “free market” philosophy that underpins modern economics encourage decentralization as long as every party is properly incentivized (mining rewards) and has access to somewhat similar resources (electricity, reasonable utility costs, etc.) as the next. 

The glory of today’s blockchains isn’t so much derived from the idea of a utopian decentralization but more so as a rebellion against the status quo of centralized banks dictating the economy, individuals being tethered to the success of their government, and the ability for large tech corporations and banks to shut down financial accounts at will. 

Exploring the Impossibility of Decentralization

There are several degrees of “decentralization,” and even though not “perfect,” even more minor decentralization improvements can be disruptive to the existing “centralized” status quo. 

The goal is to determine which areas will be impacted first; and which are the top use cases given the infrastructure’s properties (security, decentralization, scalability). 

For example, think of the idea of a decentralized “Uber,” a famous thought experiment in the blockchain entrepreneurial community. When someone needs a car to pick them up, what would they prefer: a nearly immediate connection to a driver courtesy of an efficient centralized server or waiting for minutes and potentially hours for the transaction to be verified and processed? 

Final Thoughts – Exploring the Impossibility of Decentralization

Although the push towards absolute decentralization is unfeasible, in reality, decentralization benefits vary across use cases. Simply put, we don’t need decentralization for everything– centralization tends to work just fine for most things. Therefore, it shouldn’t be viewed as an enemy of what the blockchain movement seeks to accomplish. 

Ultimately, blockchain is another technology to be leveraged to solve specific problems. 

Once upon a time, centralization was the solution to the disorganized chaos of the unpredictable. As a result, our ancestors who lived in groups tended to live longer and better lives than individuals not in groups. 

These groups evolved into tribes that utilized some form of centralization (leadership, hierarchy, enforced order) that protected its members and used resources more efficiently. Eventually, tribes expanded and, however indirectly, became countries that function using the same centralized mechanics. 

Exploring the Impossibility of Decentralization

Decentralization uses the evolution of the Internet and technological infrastructure to create systems that don’t require a centralized entity’s direct oversight. However, decentralized entities can only function within the scope of a centralized society.

Today’s projects can enjoy both the benefits of existing within the confines of a centralized society and the possibilities enabled by blockchain and the Internet. So while complete decentralization might be impossible, there’s no reason to fuss. 

Exploring the Impossibility of Decentralization