Why decentralization is key for blockchain adoption

Why decentralization is key for blockchain adoption

By Allen Walters | Publish0x posts | 8 Apr 2020

Unbank the banked. One of the most famous phrases used in crypto. You store your money on a bank account because your bank is supposed to keep it safe and you trust them to give you access to it whenever you decide to spend it. Store your money on a bank account, and no one but you can spend it. But that does require trust.

Bitcoin revolutionized the storage of value, because Bitcoin has the same qualities as banks, but without the need for users to trust a third party: Bitcoin is an immutable and trust-less (no need to trust anyone) digital program that is quite literally released on the internet. No single entity can change the core code or anything that is registered on the blockchain ledger. It is an immutable database. The reason for this is the fact that Bitcoin is decentralized: there is no central power that controls Bitcoin. There is no central power that can make fake transactions or change balances. Worldwide, thousands of people running the same program on their computer are together as one the decentralized power that runs Bitcoin. There is no central power. This makes Bitcoin immutable and trust-less.

Bitcoins success has sparked many others to launch variations of cryptocurrencies. Some have copied part of the Bitcoin code and launched their project with certain changes, and some have build a new blockchain from the ground up. Just a few of all those blockchains are actually fully decentralized though. Many blockchains are centralized on some level. The reason to choose for a more centralized option, is the fact that decentralization comes with challenges. (For example high transaction speed is easily achieved in centralized blockchains, while decentralized blockchains still face challenges on subjects like scaling and high transaction speeds.) Decentralization should, however weigh heavily in anyone who values blockchain-based cryptocurrencies.
As stated above:

  • Decentralized blockchains are immutable
  • Decentralized blockchains are trust-less

Centralized blockchains:
There could be a place for centralized blockchain applications. Some companies build their own centralized blockchain on which they run certain processes. Blockchain can reduce transaction costs, and transaction time. In this case I'm not speaking about transaction time on the blockchain itself, but about the fact that certain processes can be skipped when a transaction is made on a blockchain. The trust issue, does not apply if the blockchain is only used for internal processes, where they are the single centralized power. The downside of developing a personal blockchain is that companies have to invest heavily in development. All that investment to build something for internal use could not be worth it.
For banks it might not be an option at all to build their own centralized blockchain. It would lack interoperability. No one will use a blockchain that is being controlled by the competition. An option would be for neutral companies that solely focus on (centralized) blockchain development to create a blockchain product for other companies to use. But then still, it would be centralized and trust (meaning legal liability) would be an issue. If we look at the cryptocurrencies we know today, we see that the organisations that run centralized blockchains are not exactly world-wide reputable and renowned companies. Especially if the entities that have actual power in that system are vague entities that either hide behind anonymous addresses or some foundation based int the Cayman Islands.

Decentralization changes the game
If big companies with a lot at stake consider using blockchian as a basis of any form of serious application, they will need to make some calculation of future risk. One of the obvious choices to make is whether or not to use a centralized blockchain or decentralized blockchain. It doesn't really make sense to build a world-wide application for high value data transactions on a system that is not immutable and trust-less. Especially if there is a decentralized option available. We can only conclude that the real game-changer will be a decentralized blockchain.

Trust-less qualities matter on more levels

  • The Electis project:
    If there is one example where trust is extremely important, it is voting in democratic elections. Who counts the votes, and are the results fair? One of the initiatives to research digital voting, is Electis. Myrto Arapinis from Electis about decentralization and digital voting applications: "Most of the solutions were either centralized or trust was being distributed among a small set of authorities. [...] It is the development of blockchain technologies for decentralized banking that rekindled the idea of decentralized voting." "Blockchain provides a solution for maintaining the bulletin board in a decentralized manner. This is an essential component of a verifiable voting solution." According to Electis, the governance model implemented in Tezos contains elements that can help with voting. Recently they announced that they would build a voting application on Tezos.
  • The ENVITED work group (Including Audi, BMW, Daimler and Porsche) is also working on the integration of blockchain applications in their technology. In this video, from 19:50, he explains why they would choose for a public blockchain.
    Rough summarized quote: It is a notary function that creates trust and removes the imbalance of power between parties participating in the database market. So big companies with an army of lawyers and small startups can both operate on the same level of trust. 
  • Once a supposedly decentralized blockchain turns out to be centralized, it can have some very unpleasant consequences. EOS has lost its most promising project "Everipedia" over centralization issues

"We cannot continue to build dapps on EOS if the network is de facto centralized in the hands of the Chinese."
- Wikipedia co-founder Larry Sanger

Allen Walters
Allen Walters

Fascinated by blockchain and future proofing cryptocurrency. Discover the tech before it gets relevant. Twitter: @IgnoranceIt

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