A Few Thoughts on Decentralization…

Blockchain is an exciting technology in many aspects. It can be the basis of alternative economic entities, as well as propel traditional, bureaucracy-heavy businesses into the digital age. But as Juan Manuel Sobral pointed out, “crypto” is not synonymous with “utopia”.

Decentralization gets a lot of hype and for good reason. It can level the playing field for any user wanting to be a part of a given blockchain, whatever its activity, and since there isn’t a central governing entity but nodes with (ideally) equal power, it is more dependable in the face of contingencies, whether there’s corruption or a power failure. Taking intermediaries out of the equation saves costs and fosters confidence in users that distrust them, provided that certain consensus standards are met. What’s more, politically and ethically, decentralization embodies everything the Internet once promised to be: fully democratic, open to everyone and fair.

The issue is that by either design or behavior, there’s always something holding blockchain back from achieving true decentralization. Throwback to the birth of Bitcoin: no one knows if its proponent, Satoshi Nakamoto, is an individual, a group of people or an organization – the creation of that famous white paper was already marked by a lack of transparency. What’s more, although Bitcoin allows all users to validate transactions through a resource-investment-and-reward process called mining, individuals can form organized pools and practically have all transactions go through them.

Similarly, if a network employs gas or fees to validate operations, users willing to spend more can do faster transactions compared to everyone else, influencing the minimum investment cost and making it less desirable for others to participate. In such a scenario, certain nods simply have more clout, even though the chain’s design and web description might propose otherwise. So the issue of trust, which a decentralized entity would help mitigate with theoretical self-regulation dynamics, resurfaces.

Those “leader nodes”, common in many blockchain networks, are one of the technology’s main points of vulnerability. They also create redundancy, since each transaction, already sent as “validated” by them, goes through the other nodes once more. A block of data introduced by a leader node has more chances of becoming a legitimate part of the network and yet it may be incorrect or problematic. Updates might fix this, which in principle could be proposed by any chain member. In reality, however, that capacity to make changes is in the hands of a select few.

Blockchains that deal with real-world information create additional complications. One of the main appeals of the technology is that networks are not only safe from tampering by individual nodes but also isolated from any external input. To bridge that barrier, for example in the case of an insurance company that provides smart contracts as part of their service, a network needs an oracle – middleware that handles communication between blockchains and any off-chain system, like data providers, enterprise backends, web APIs, cloud providers, payment systems, other blockchains and so on.

The problem is that blockchains are not natively designed to deal with complex, non-numerical data. Proof-of-Work and Proof-of-Stake consensus mechanisms can’t really validate what’s the exchange rate of dollars to Uruguayan pesos if nodes consult different sources or disagree with each other. How can we make sure that the information submitted into a blockchain is reliable? And even if we manage that, will every participating member be able to agree and update their software?

Historically, the Byzantine Generals problem invited blockchain providers and academics to devise various ways of creating a solid leader node. Many nowadays see that as a design flaw contrary to decentralization and are seeking to create crypto products and services that embody the principle more faithfully. It’s clear that blockchain is becoming more and more popular among individuals and companies, and that decentralization is a big part of that. But what if the problem is the word itself?

Some suggest that “distribution” and not “decentralization” offers a better paradigmatic axis, since the word implies the actual division of decision-making power. Preventing the formation of scale-tilting entities and phenomena such as leader nodes, and redefining the way consensus is achieved might hold the keys to the future. For instance, when the stock market closes each day, buyers and sellers must agree on stock prices using a stochastic process – there is no right-answer-dependent validation but a mechanism that reaches consensus by taking into account complex variables and calculating “averages”.

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This is all in the realm of ideas but a couple of innovative structural changes might lead blockchain to fulfill its true potential, break away from scalability issues and minimize the need for intermediaries even more.

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Thanks for getting this far! If you want to know more about this disruptive technology you can contact us at info@spacedev.io