What is decentralization, and why is it important?
In cryptoeconomics we often see the word “decentralization” bounded around. Many think that cryptoecnomics is synonymous with decentralization, it isn’t and we consistently see examples that demonstrate this.
There seems to be some confusion around what “decentralization” means. Lets break this down.
There are three different axis of centralization/decentralization. They may be combined, or operate independently. The axis include:
The very kind Vitalik has provided an example for us to visualise these dimensional axis.
Lets go through a few of them:
Although many tote the convenience of having a central database, this require a logical centralization. Arguably this should be advocated against. For areas and regions of poor connectivity or in the event of large network partitions logical decentralization is desired.
In the past an architectural centralization was needed to form a political centralized system, such as a formal democracy. Politicians would need to meet, discuss, debate and vote on matter in a physical location. In the modern world if this was done online, say via a forum or discord for convenience and the owners of said forum or server acted manipulatively or maliciously then the community now has the option to move to a different forum or server.
Although architectural decentralization and/or political decentralization is hard to form with logical centralization, it is possible. We have seen networks of decentralized consensus function, albeit they are difficult to maintain.
Next lets break down some of the main reasons for decentralization. There are three main arguments:
Lets look at each of these arguments and break them down.
Attack resilience. Some economic models do not require and decentralization. The reason being that if there is large enough margin of economic security then game theory dictates that an effort should be made to maximize this, then it doesn’t matter who controls the validators. For example, if validators are guaranteed to lose $75 million if a 51% attack occurs.
The above point is fine. However, if we add the risk of coercion then decentralization becomes important. Threats of physical harm or death will quickly put the loss of that $75 million into perspective, suddenly it doesn’t matter so much. But, if that $75 million is distributed between 100 people the game changes, you would have to execute the same coercion across all of those people at the same time. This decentralization creates an asymmetric disadvantage to a would be attacker.
What does the two points above have to do with blockchain? The argument of proof of stake (PoS) over proof of work (PoW) can be inserted here. While hardware is easy to attack, destroy, regulate, detect and monitor, coins are much less so. Blockchains also tend to have globally distributed teams.
Now, lets explore a little of fault tolerance. The obvious point to be made here is of probability. What is more probable, one computer failing, or ten, or one hundred? The principle of fault tolerance is used everywhere, you only have to look around yourself for examples such as a national power grid and the numerous back up stations to see this or a hospital and the backup generators. We see examples across all sectors, health, military, economic, etc.
Though this is not a panacea. It is effective, it is importance. But, it is not a cure all. Let us again consider blockchains. Consider common mode failure.
The risk of the above points should be actively minimized if possible. The following are obvious examples that each protocol that desire to lower this risk should aim for:
When considering collusion resistance it is important to recognise how difficult a subject it is to break down. Firstly, “collusion” is defined as “coordination that we do not like”. There are always group that will be able to operate and coordinate whiles other groups cannot. Likely collusion cannot be eliminated but rather reduced.
When considering collusion in blockchain protocols, consensus is placed on the uncoordinated choice model and/or the assumption that there are many participants making independent decisions. When considering PoW blockchains, if one entity or group can acquire more than 33% of the mining power then they can employ selfish-mining. We do not see that in Bitcoin, however it is important to note that the majority of Bitcoin network’s mining power can show up at the same conference…
The point is that these systems should not act as self-interested monopolies. Blockchains may be more secure when discoordination. This is a paradox however. How can you foster and improve “good coordination” while simultaneously prevent or deter “bad coordination”.
When considering different combinations of decentralization a trade-off seems unavoidable and inevitable. We may yet see different combinations and applications emerge for specific use cases. It should be valued and strived for.
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