The usefulness of decentralization (part 1 of 3)

September 29, 2022 - 5 minutes
Article by Paul Van Vulpen En Edwin Fennema

Blockchain is often about cryptocurrency, the speculation with it and undesirably high energy consumption behind the computing power required. However, blockchain technology can do much more. For example, it can also shape decentralization of centrally regulated entities and encourage unbundling of such entities.

What do we mean by decentralization?

Paul: “It is easiest to contrast this concept with the concept of centralization. By centralization, we mean that you put decision-making down at one central point in a society or community. Decentralization is the opposite trend: here you divide decision-making among different layers or levels. With technology, you streamline certain aspects of this.”

Edwin: “Centralization was a logical choice in the last century. To keep things reliable, neat, organized and affordable, it was best to run them through one central point. The underlying reason for this was that in those days we were not connected on a large scale. The group of people with whom you were one-to-one - that is, on the same level - was limited to your neighbors, the people from the club, your family and, if you were lucky, your in-laws. These were often no more than fifty people. A big difference from these days, where we have a huge number of connections through social media alone. And because we are digitally connected to so many people, we can now unbundle. We no longer have to be tied together to one central entity, but can start initiatives among ourselves. Courtesy of technology.”

‘Because we are connected to so many people, we can now unbundle’

Is decentralization necessary? Is it something we should aspire to?

Paul: “Decentralization can bring benefits. Today we see that digitalization has increased the power of the central institution. Both in terms of decision-making and execution. Thanks to technology, these institutions have great insight into the doings of citizens and can intervene in the lives of citizens to a great extent. And I am referring to both the central government and large corporations. The question this raises, of course, is: isn't that dangerous? By decentralizing, you can curb that power.”

Edwin: “The development Paul outlines, that institutions are gaining more power, is a risk we are taking. And that it sometimes goes wrong is a fact. Consider the benefits law, in which officials within the lines of bureaucracy caused a terrible situation for citizens. The government used power in a way that it believed and was legitimized by power, but which turned out to be disastrous for those affected. By this I do not mean, by the way, that institutions with power are necessarily bad or have evil intentions. But even if the intention is good, power can have terrible consequences. Are the institutions or people intent on doing evil? Then decentralization can help curb that power.”

Are there any drawbacks to decentralization?

Paul: “In fact, decentralization is not an efficient solution, although technology can make it more efficient. On the contrary, it is efficient to organize everything centrally because then you can standardize. Look at municipalities. Each municipality has the freedom to decide for itself how to carry out tasks. But this results in a wide field of standards and applications. It would be much more efficient if every municipality received some kind of standard package and the central government said: this is how you will administer. For some standard information such a central solution is fine, for example for owner administration that is stored centrally at the Land Registry throughout the country. But when we store information that describes the multitude of people's lives and life choices, a decentralized solution, if tailored to the local situation, fits better. The record of my banking transactions is very personal, but they are now stored centrally. Another disadvantage of decentralization is that it can make it more difficult to take important decisions. Those decisions then have to take place over several levels.”

Edwin: “The danger of decentralization can also be seen in social media, where some people feel compelled to bully or insult other people. This happens because the underlying software does not regulate this kind of expression. As soon as you remove regulation, you end up with people's characters, and they can't always be trusted. That anonymity makes it easy for some people to attack other people, spread lies or propaganda without feeling bad. We see the same thing happening in the war between Ukraine and Russia. In a decentralized organized society, that risk is much greater than in a centrally organized society. That is, provided the centrally organized institution is not itself the source of the propaganda. In short, it is important to find a good balance in which regulation takes place; preferably not by those in power themselves, but by some form of technology. That technology must play both a facilitating and a regulating role in this.”

Paul: “In addition to my work at Centric, I am a PhD candidate in the field of decentralized technology. I do research on how local communities organize themselves around a digital source of truth. What I see is that those local communities, precisely at a decentralized – local – level, want individuals to be able to make their own rules about how value goes to that source and how value is removed from that source. This has to do with the fact that a central body often has insufficient knowledge of how such a source of truth works. Look at Wikipedia. This platform has a kind of umbrella organization and within the domains it uses experts. They decide what kind of rules and standards are used in the field of historiography, for example. A local group within Wikipedia determines that. You can apply that kind of model to the local environment as well.”

Edwin: “Wikipedia is indeed a good example. I once wrote an article for Wikipedia, and then there were at least ten experts who pointed out the set of rules devised from Wikipedia philosophy to make it procedurally sound. They also informed me that, unknowingly, I had broken several rules and I had to make a new version if I wanted the article to be published for an extended period of time. So this did not come from a central director of Wikipedia, but from a group of people who feel connected to the quality of the texts on the platform. So in addition to contributors, you also need regulators: people who are technically oriented, or people who share something with decentralized parties through technology.”

‘Programmable money can bring back the human touch in local relationships’

What does all this mean for the central organization? Does it disappear over time?

Paul: “That is neither feasible nor desirable. You want national security, for example, regulated at the state level. The same goes for diplomacy. You have to keep in touch with other countries from the central body. Another example is public transportation. Trains need rails to run. And things that are just there in the real environment, the physical world, and owned by the public, need a central regulatory body.”

Edwin: “It is currently prevalent to think, to philosophize, about a world without states. After all, what is a state? Not much more than a line drawn with a stick in the clay soil. In fact, we are simply one planet. But as long as there are artificial, legal states, we do have to take care of state affairs and protect 'our' state from 'the other'. This lies as a responsibility at the central level. An entirely decentralized army (cells), for example, would be impractical for defense, unless you are fighting a guerrilla war. Yet there are also many parts of our society that are not state-based and function on their own. If we don't have a government for two years, for the most part the Netherlands will continue to function as usual. A lot of centrally regulating bodies, interest groups and umbrella organizations should actually go from policy-making to facilitating. Just like Wikipedia. In fact, that platform does nothing but facilitate. ”

Can you give an example of successful decentralization?

Paul: “Decentralization at the state level is very difficult. Central bodies often tend to keep power to themselves unless there is a large-scale need for it. Sometimes it even takes a revolution to make it happen.”

Edwin: “Making money programmable through blockchain technology is an example of successful decentralization. In Third World countries, people don't always have the right papers to do banking. Now they have a decentralized organized form of money that no longer goes through a bank. In fact, for coins, all you need is a smartphone and the internet. Even sending money, which takes place all over the world, becomes much easier with virtual money. And make no mistake: blockchain is a technical architecture that offers countless ways to improve relationships. Even on a human level. I would even argue that programmable money can bring back the human touch to local relationships. This form of money can contribute to smarter and longer-lasting business relationships between municipal residents and local providers.”

Paul: “Another example of successful decentralization at the micro level is a WhatsApp group that neighborhood residents use to keep each other informed about what is happening in the neighborhood. This was created decentrally and does not involve the police or the mayor. The only thing the government does is facilitate the signs that say Attention Neighborhood Prevention.

Edwin: “And this, of course, is just the beginning. Over time, thanks in part to a technology like blockchain, more and more local initiatives will emerge. The future is local!”

Onderaan artikel: Keep an eye on Insights for parts 2 and 3 of this series on decentralization.

Do you find blockchain interesting, but lack certain basics? Then read the article What is blockchain?

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