Word clouds are an easy way to see which topics within any subject are most prominent. Generate a word cloud from the Reddit cryptocurrency forum or an array of blockchain whitepapers, and one will quickly see that a single term – “decentralized” – is the biggest and boldest. It’s no surprise, given that blockchain represents the first real departure from the centralized way of doing things that still defines the classic internet.
Decentralization is to host a platform or service in multiple hubs at once, rather than to give a single authority all the responsibility for providing content, verifying participants and enforcing security standards. It is another layer on top of the infrastructure already supporting the World Wide Web, turning those who were once content consumers exclusively into stakeholders in the new status quo.
Decentralization doesn’t describe just one type of distribution, however. Though the general concept is often the same, the ways that different blockchains go about encouraging decentralization are diverse and ultimately impact the efficacy of their unique solutions. Blockchain’s purpose is to decentralize what was once centralized, but the ways to accomplish this feat remain a point of contention between blockchain enthusiasts. Despite their common goal, there is animosity between projects that view their strategies as superior to others. Many are quick to deride competitors as ‘centralized’ – one of the harshest critiques in the young industry. While this might be going too far, it’s true that there are many shades of decentralization among blockchains that exist today.
Why Decentralize?
Regardless of how a blockchain solution achieves decentralization, it’s important to understand why individuals or companies want to pursue this type of structure in the first place. When a blockchain proponent describes the ‘centralized’ status quo, he or she is describing how most services use a central server or server bank, which handle traffic coming from around the world. Most of the internet is built on this type of foundation, but it’s become more centralized over time. Cloud computing exacerbated the trend by centralizing en masse, which enabled companies to host their services without in-house hardware. Companies like Amazon and Google have, accordingly, become among the few providers of the clouds that serve us all.
This has some poignant downsides, the most important of which is security. Though billions are spent to protect centralized sources of computing power, they are never infallible, and will always represent a single point of weakness. Even multi-billion dollar international companies like Equifax can be breached by a resourceful hacker. Decentralization deters break-ins because even if someone manages to penetrate a node, they cannot access the greater network’s data, affect it in any way nor learn anything about its participants. Distributed services are also more desirable because they unseat the entrenched middlemen in centralized systems. For example, the payment processors that take a small percentage of each online transaction, or data science companies which sell retail insights after buying consumer purchase behavior information from places like Amazon.
Decentralization is also a deterrent against government action, though this point isn’t emphasized often. Should governments decide to shut down a blockchain project that threatens their dominance—bitcoin, perhaps—a more thorough decentralized network ensures that it stays alive in some form, regardless.
Defining Maximum Decentralization
There are many reasons for wanting a decentralized solution, and many ways to go about building one. For all the benefits described above, blockchains built to host other services like Ethereum, QTUM and NEO all put their own unique spin on how those using their platform achieve decentralization. There are many ways to define true decentralization, but the best incorporate physical, political and algorithmic decentralization simultaneously. The goal is to give the network’s participants equal footing with one another and achieve complete immunization from undue outside (or inside) influence. Physical decentralization is the one aspect that most people think of when describing blockchain, and it concerns how many computers make up the collective network. Is it just a handful of nodes, like the NEO blockchain, or are there thousands of disparate participants around the world with the blockchain running on their PCs?
The more nodes there are and the greater their geographic diversity, the stronger decentralization becomes. However, physical decentralization is no more important than political decentralization, which describes the degree to which a solution discourages grouping. Decentralization takes many entities to work properly, like the miners who verify and process transactions. Truly decentralized blockchains make it hard for one group to put their interests above another’s. Take bitcoin, for example, where miners earn fees for each transaction they process. Obviously, faster transactions are a benefit to all, but the slower they get, the higher fees become as people try to push their payment through first. Therefore, miners’ interests are not aligned with users’, as they can make more money to the latter group’s detriment. Such a solution is decentralized, but is not sustainable, and it is a sore spot for many of bitcoin’s biggest advocates. They’ve redeemed themselves by making bitcoin easier to mine on retail PCs, which slowly reduces the sway of big mining pools.
Algorithmic decentralization concerns the protocols that guide a blockchain’s ongoing development. Proof of Work (PoW), for instance, gives more responsibility to participants who can show that they’ve put effort into the system by mining. However, it’s easy to see why companies are moving away from PoW, because it gives more power to those who can build massive mining compounds, which is a factor of electricity costs and other circumstantial advantages. Instead, blockchains like QTUM favor the Proof of Stake (PoS) protocol, which gives those with a larger stake in the chain a louder voice. This idea is one of the most crucial to decentralization, because it informs how the blockchain upgrades, fills holes and improves itself. QTUM is also unique in that it’s built on bitcoin’s lightweight blockchain, but also combines the smart contract functionality of Ethereum, thanks to backwards compatibility with its virtual machine.
Pure Decentralization Is Still A Pipe Dream
Vitalik Buterin, the founder of Ethereum, understands how difficult it is to achieve true decentralization. He says, “The best solution may be to rely heavily on the one group that is guaranteed to be fairly decentralized: the protocol’s users.”
Those who rely on blockchain services to do business or pursue their own passions are the most relevant stakeholders. Though their own interests may not align with those of the investors, miners or developers, whatever benefits them most is also the contributing factor that will likely keep the blockchains they opt to use both functional and growing. By exercising their empathy and putting themselves in their potential users’ shoes, startups still deciding which blockchain to build on can arrive at an honest answer for what decentralization truly means for them and their associated services.
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