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The importance of decentralisation

As discussed in Causes of the breaches of trust, experience has shown that centralisation of authority is almost always harmful to the vast majority of the population and, in certain cases, threatens their very life. Decentralisation of power, on the other hand, has been proved to have a hugely positive impact on human rights, progress, prosperity, and peace among the general population. As a result, in almost all cases, the benefits of power decentralisation surpass the benefits of power centralisation. The more decentralised power is, the less detrimental the consequences of power abuse are. Therefore, no matter how difficult it is to achieve, high decentralisation is always a worthwhile goal (particularly in domains prone to power centralisation), because it is the only way to protect human rights, developing countries, and the environment.

Governments are good at cutting off the heads of a centrally controlled networks like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.

Satoshi Nakamoto

The Why and How of decentralisation of a digital money system has also been summarised quite well on the Radix Blog:

The desire for decentralisation springs from a fundamental desire for antifragility. For some this is about a distrust of authority. For others, it is about creating better systems for storing human wealth. If a good is publicly owned, we generally have less concerns about it being able to be taken away. Like any fundamentally important infrastructure, we ideally want it to be resilient and self-repairing.

People care for the same reason they care about the internet continuing to exist: it is vitally important to them. The stakes are even higher for decentralised public networks as this is where people’s wealth will live, not just information.

Anti-fragility really just means “self-sustaining”. Measures include:

  • Once launched, can the protocol be stopped by its creator?
  • Can the protocol live independently of any single entity or person?
  • Does the protocol grow stronger as it grows in importance?

For a network to be self-sustaining all parts within the ecosystem need to feed and sustain each other. For a decentralised public network, there must be an ecosystem that derives significant value from the existence of the ledger. This ecosystem must either “work for” or “pay for” the ledgers continuation and protection. There should be no irreplaceable parts of the ecosystem.

The three antifragility measures of decentralisation are strongly reminiscent of the features of a living organism or a spreading virus. And this is precisely why decentralisation is so important for a DLT system, because its future success is dependent on its ability to grow inexorably and its inability to be stopped or captured with large sums of money, brute force, or high authority. Bitcoin, as correctly recognised by Michael Saylor, Gigi, and Alex Gladstein, has already reached this point.

Another article, and probably one of the most important ones, about the significance of decentralisation was written by Spencer Bogart a few years ago: The Long Game in Crypto: Why Decentralization Matters

(If you haven’t read this article yet, we strongly advise you to do so now and return when you’re done.)

Spencer makes an excellent argument in this piece when he says:

More specifically, my issues with this “platform-grade” narrative are two-fold:

First, permissionless platforms will inevitably demand sovereign-grade censorship resistance and, second, if not truly permissionless then these platforms will trend toward the same outcome as today’s centralized platforms (censorship and permissioning) but with less efficient infrastructure.

Spencer argues that there’s no point in ‘platform-grade’ censorship resistant platforms (platforms that are unlikely to be subject to nation-state attackers), because these platforms will trend toward the same outcome as today’s centralised platforms (censorship and permissioning) but with less efficient infrastructure. Unfortunately we can see this trend happening to platforms like Ethereum right now. That’s why he thinks that highly decentralised permissionless platforms with ‘sovereign-grade’ censorship resistance might be the only viable strategy in the medium- to long-term.

Likewise, Vitalik Buterin (one of Ethereum’s co-founders) discusses the significance of decentralisation for security in his blog post The Limits to Blockchain Scalability:

If you have a community of 37 node runners and 80000 passive listeners that check signatures and block headers, the attacker wins. If you have a community where everyone runs a node, the attacker loses. We don’t know what the exact threshold is at which herd immunity against coordinated attacks kicks in, but there is one thing that’s absolutely clear: more nodes good, fewer nodes bad, and we definitely need more than a few dozen or few hundred.

And:

For a blockchain to be decentralized, it’s crucially important for regular users to be able to run a node, and to have a culture where running nodes is a common activity.

So, in order to achieve sovereign-grade censorship resistance, we need the highest amount of decentralisation feasible, because the more decentralised a system is, the more censorship resistant it is. This means we have to involve as many people as possible in the system’s operation. And for this, the following two features in particular are of essential importance:

  1. Incentivise people to engage in the system’s operation by rewarding them financially.
  2. Very low financial and technical entry barrier to participate in the system’s operation. I.e.:
    • Setting up and running a node must be foolproof.
    • The initial and ongoing expenditures of a node must be relatively low, or else (mostly) covered by income from participation in the operation of the system.

Requiring an upfront investment in specialised hardware (in the case of PoW) or a large number of tokens (in the case of PoS) or other constraints (such as low energy prices, etc.) to participate in the network’s operation is a type of centralisation because most individuals cannot afford it. Others who can, however (particularly wealthy individuals or organisations) wield greater influence on the system’s consensus and profit far more from it than those who cannot.

note

We are well aware of the differences between miners and node operators. But if the most powerful miners for example suppressed transactions from specific people, node operators couldn’t help them and therefore the requirements of neutrality and censorship-resistance would be violated.

This could eventually lead to a type of centralisation akin to what we currently have with the legacy financial institutions.

As a result, being able to participate in the operation of a DLT system using low-cost hardware and without the need to stake tokens would be a big step forwards in terms of decentralisation.

That is exactly what a trust-based system would allow. With relatively little financial commitment, anyone could become an operator in the network. It is even quite likely that the revenue from participation in the network’s operation would outweigh the running costs for the majority of operators. And the more trust an operator (individual, organisation, or business) has, the more they will profit.

This opens up a whole new world, because we can now achieve true decentralisation for the first time. Specifically because (1) there are no miners or validators, (2) there is a strong incentive for individuals to run nodes because they will be rewarded for it (similar to miners and validators), and (3) setting up and running a node will be as simple and affordable as it is for Bitcoin nodes.