Why Decentralize?
What is Decentralization?
When explaining why blockchains and cryptocurrencies are important, the term decentralization is often used. But what does that even mean, and how is it beneficial? Today, we’ll take a closer look at what decentralization is and why it matters.
Decentralization refers to transferring control and decision-making from an individual, organization, or group to a distributed network. Distributed networks strive to reduce the level of trust that participants need to place in each other and prevent them from exerting authority or control over one another in ways that undermine the functionality of the network.
I believe that decentralization is much bigger than blockchains and cryptocurrencies, and it will fuel the development of the next phase of the internet, Web3. So, another way to frame the fundamental question of why decentralize is to ask why Web3 is better than centralized internet platforms like Google, Facebook, Amazon, and other big tech companies?
Centralized Internet Platforms Are Killing Innovation
According to Chris Dixon, an entrepreneur and seed investor, the lifecycle of centralized internet platforms is quite predictable. When a centralized internet platform first launches, it typically tries to attract users and third-party complements, such as developers, creators, and businesses, which are required to make the product more valuable. However, as soon as the platform gets widespread adoption, the only way to maintain growth is to extract data from users and compete with third-party complements for their audiences and profits.
Consequently, users have no choice but to give up privacy and control over their data, and developers, creators, businesses and other driving forces of the internet economy have become wary of building innovative services on top of centralized internet platforms as they may alter the rules of the game at any given moment.
Web3, made up of decentralized internet platforms built on distributed blockchain networks that economically incentivize participants to work together via cryptocurrencies, provides an effective solution to this problem in three ways:
1. Since decentralized internet platforms are governed by the communities behind them rather than a single entity, they appeal to developers, creators, and entrepreneurs, who no longer have to worry about the rules changing on them unexpectedly as platforms grow.
2. A decentralized internet platform’s open-source code can enforce the contract between distributed blockchain networks and their participants.
3. Participants are given a voice through community governance, and they can exit by leaving the decentralized internet platform and selling its accompanying cryptocurrency or, in the worst-case scenario, by forking the protocol.
Product/Market Fit for Decentralized Internet Platforms
At launch, centralized internet platforms are frequently coupled with compelling applications. Google had its core search features, Facebook had its core socializing features, and Amazon had its core e-commerce features. Decentralized internet platforms, on the other hand, often launch with flaws and no concrete use cases. As a result, they must go through two stages of Product/Market Fit:
1. Product/Market Fit between the decentralized internet platform and the developers, creators, and entrepreneurs who will finish the platform and grow the community.
2. Product/Market Fit between the decentralized internet platform, its community and end-users.
For this reason, when we compare centralized vs decentralized internet platforms, it is important to see them as processes rather than fixed products. Centralized internet platforms start off fully baked, but they only improve at the rate at which the sponsoring company’s employees upgrade them. Decentralized internet platforms start off half baked but, given the right conditions, grow exponentially as more contributors participate and feedback loops compound, including developers of the core protocol, developers of third-party applications, and service providers who operate the distributed blockchain network.
Whether centralized or decentralized internet platforms will win boils down to who can build the most compelling products, which ultimately means who is able to attract the best developers, creators, and entrepreneurs. Big tech has numerous advantages, including massive user bases, cash reserves, and operational infrastructure. But if Web3 can capture the hearts and minds of developers, creators, and entrepreneurs, they can mobilize more resources than centralized internet platforms and rapidly outperform their product development.
Where We Are Now
Centralization has helped onboard billions of people to the internet and has created the stable, robust infrastructure on which it lives. The good news is that billions of people have access to incredible technologies, many of which are free. But the bad news is that a few centralized companies control large swaths of the internet, arbitrarily selecting what should and should not be permitted.
Today, Google controls 90% of search and roughly the same proportion of buy-side and sell-side ad-tech; Facebook owns 60% of social media, while Amazon Web Services hosts 40% of the internet. Within these big tech companies, unaccountable groups of employees decide how information gets ranked and filtered, which users get promoted and banned, and other important governance decisions. From fake news and algorithmic biases to data monitoring, there’s no shortage of problems that need to be resolved.
While Web3 is not a silver bullet that will fix all of these problems, it does offer a much better approach. On decentralized internet platforms, decisions are made using open and transparent mechanisms. As we know from the offline world, democratic systems aren’t perfect, but they are a lot better than the alternatives.
The Next Phase of the Internet
I think that the internet is still early in its evolution; internet services will almost certainly be rearchitected in the following decades. This will be made possible through Web3, an extension of ideas initially proposed in Bitcoin and later explored in Ethereum. Decentralized internet platforms combine the best features of all protocol types that have ever existed as they are community-governed, secure and robust, and can economically incentivize participants.
It is also true, however, that today’s decentralized internet platforms suffer from limitations around performance and scalability that keep them from seriously challenging centralized incumbents. The next few years will concern fixing these limitations and building the core infrastructure layer of the Web3 stack. After that, most of the energy will turn to building customer-facing applications on top of that infrastructure.
Big tech may not be inherently evil, but the centralization of the internet is affecting society in ways that we are only just beginning to understand. In the same way that the centralization of power throughout history pushed us towards democracy and open markets, so too will the concept of digital power migrating to decentralization.