Dissecting ’Decentralization‘

Decentralization is under fire from all sides, even from me. Like any word, if we say it too much it starts to lose its meaning. From marketing materials to fundraising talks, it’s an easily fake-able signal of dogmatic purity that says “we’re with the cool kids”. But what does decentralization even mean? At the risk of beating a boring dead horse I’ll explain my theory of the true meaning(s) behind this idea in the hopes that it advances the confused discourse.

Decentralization = Demonopolizing Power + Corruption Resistance + Nation-state Resistance

Demonopolizing Power

I like this word demonopolizing because it has the word ‘demon’ in it.

The most accessible and least concrete meaning behind decentralization is the obvious ideological thesis: that power is very centralized in this world, that this centralization is the root-cause of many social ills, and this power should be decentralized (read: destroyed and replaced with democratic alternatives).

Everywhere we look we see institutions crumbling as their monopolies hold themselves and the world back with rent-seeking behavior:

• The United States enjoys a monopoly on the global reserve currency, an exorbitant privilege that affords us a massive military and the ability to print our way out of economic and monetary policy missteps unlike any other country.

• Healthcare in the US is ruthlessly expensive and inefficient because the players are too big (centralized) for congress to mess with.

• Universities and Academics around the world offer disappointingly few satisfying answers to big questions as we try to navigate these times of turbulence. The progress of most scientific disciplines has slowed or transformed into LARPing simulation.
  
  Tuition prices are rising much faster than inflation and putting generations of Americans in debt. College administrations sent home millions of college kids during the pandemic despite hard evidence that covid is less dangerous to young people than driving a car.
  
  What’s going on here? Centralization. Academics and administrators alike have become ideologically centralized. There are many exceptions but by and large our trusty academics are not keeping up with reality and our trusty schools are revealing their incompetence, or worse, bad faith.-

• Finance is a cabal of knighted banks that operate as extensions of the US federal reserve. When they make money, they take it home. When they lose money, we foot the bill. When the Fed says “jump”, they say “how high”. Consumers are stuck with credit cards with 27% interest rates and savings accounts with 0% interest rates.

• Tech is basically five companies directly (or indirectly) buying our attention for nothing and selling it for billions. Meanwhile they stifle innovation by acquiring or squashing competition and keeping their data ecosystems closed.

• Hollywood and the media seem to think they know the answer to society’s ills, but the quality of their content has steadily declined. The entertainment value has eroded because most of the content offers no satisfying answer to the philosophical/ideological question of what is wrong with the world and how we should go about fixing it.

What do these dysfunctional sectors have in common? They have too much power. So let’s decentralize.

Corruption Resistance

If it’s going to be decentralized, it’s got to be permissionless, and if it’s got to permissionless it also has to be distributed. Otherwise it’s going to be centralized. Got it?

A centralized system is vulnerable to corruption. Just like liberal democratic governments tend away from corruption more than authoritarian ones, liberal democratic computer systems tend away from corruption more than authoritarian ones.

Ask yourself: Why did Bitcoin work? Did it work because it was somehow resistant to nation states? Did it work because it ran across many computers all over the globe? No, it worked because everyone knew that there was no one individual with the ability to arbitrarily create, steal, or prevent the exchange of money. With that property it turns out people are really willing to plough their money in assets not protected by a physical military. The ability for anyone to start or stop a node in the system at any time without permission is what makes a system permissionless. Period.

Google runs software across the globe, but are they decentralized? No, because they’re not permissionless. I can’t spin up a Google search engine node as a non-google employee. The fiat banking system is the same – it’s the product of tens of thousands of computer systems working redundantly in tandem to deliver a (very subpar) experience, and yet its not decentralized because it’s not permissionless.

So remember this: when people talk technically about decentralization, they’re usually referring to the permissionless nature leading to corruption-resistance. Nobody wants to invest in a thing without getting some controlling equity in return.

Nation-State Resistance

This is the edgy one. Remember, cryptocurrencies are capable of handling massive value without corruption because they’re democratically controlled. In order for them to be democratically controlled, they have to be permissionless, i.e. they have to run in a distributed fashion such that anyone can join the system with a node of their own. So we get corruption-resistance, but we also get this neat property of redundancy. There are 10,000 bitcoin full nodes out there. They’d all have to go down for bitcoin to die. That’s some resiliency.

The funny thing is that this naive nation-state resistance mostly a convenient byproduct of the corruption-resistance we were after above. “No”, you’ll say. “Bitcoin was designed to be redundant so it couldn’t be shut down by nation-states.” Hell no. Hostile governments don’t need to shut down Bitcoin, they need to shut down Bitcoin in their country.

How do they do this? They shut down and prosecute every bitcoin node operator in their country, then they set up a national-firewall and blacklist external bitcoin IPs. While they’re at it, they blacklist VPN and proxy providers. Fortunately for them, it’s pretty easy to get a dynamic list of all the Bitcoin IPs. This is what China has done successfully. So no, Bitcoin doesn’t come designed with much nation-state resistance. And this is a huge problem.

Bitcoin is a threat to the dominance of the most powerful organization in the world. Few realize this. You might think this organization (the US) will go down without a fight in some nice bloodless revolution. This seems wrong to me. Americans have everything to lose if dollar system ends, because without it they will suddenly be in a position where the axis of China is an even match economically (and then militarily). So they’ll fight tooth and nail to ban the thing when they figure this out. Many other countries around the world will follow suit when they realize that this same threat affects them, albeit less dramatically. In anticipation of this, it is up to us as an industry to design systems to evade these controls. This task, of nation-state-resistance, is the third and final meaning of decentralization I’ve observed. It’s the least discussed and most important meaning of decentralization because without this property blockchains will certainly succumb to nation-states.