The value of blockchains
Or why decentralization matters
When using abstract words like “decentralization” or “transparency”, their benefits are not immediately obvious to everybody. Therefore, today I am going to provide a few examples of why decentralization matters.
Lack of control
Or middlemen that hold a de facto monopoly. This is the initial use case for cryptocurrencies, replacing central banks with the Bitcoin algorithm, in particular the mining of new coins and the halving of the amount per block, as an “algorithmic monetary policy”.
Similarly, the network effects in social media are very strong, and the attempts at crypto-based social media keep piling up. There are arguments in favor of decentralized social media, information access, etc. In my humble opinion, the centralization of social media is not “painful” enough to cause a migration to decentralized approaches.1
De facto monopolies are more feasible in non-rival goods, due to the elasticity of the production and the possibility of economies of scale. This was probably one of the catalysts for FOSS. The natural structure of FOSS projects like GNU should be a DAO.2
If artificial general intelligence (AGI) existed in the future, it could mean the end of workers’ wages. Redistribution of wealth would only be possible with universal basic income or similar approaches, which probably should include the decentralized ownership of the software that produces everything. Self-driving cars may just be similarly disruptive for the job market and much closer in time.
Similar situations may be seen in finance, real estate, cloud, logistics, healthcare, etc. Sectors that lack an active competition3 are ripe for disruption. Decentralization is a possible form of disruption, and blockchains are a technology for decentralization. Decentralization would work like the ultimate commoditization, squeezing margins, and making providers more easily replaceable. If nothing else, a fork is always a possibility with FOSS, and we see forks happening much more often in FOSS than we see with companies.
Lack of accountability
Or middlemen that answer no one. Everyone answers someone in the end, even founders and CEOs have to answer to investors, stockholders, and all kinds of committees. However, answering someone does not mean not having the upper hand.
In this case, people and groups of people may make decisions that are not beneficial or are harmful to the well-being of humanity, the environment, other species, etc.4
Decentralization using blockchains is very recent, and DAOs are arguably only theoretical yet. Therefore, accountability is an area for speculation. Net neutrality could have had a different outcome if the decision had been made .
Another example are natural resources. In capitalist economies, natural resources are often considered externalities and could be better preserved by tokenization. In the current model, natural resources are profitable by extracting and selling their value, as a transaction. In a tokenized model, they would be valuable for their counterpart, with the tokens representing the underlying resource. This allows effectively transforming incentives from exploitation, i.e. moral hazard, to preservation, i.e. aligned incentives.
For a more specific example, we may choose to represent the Amazon forest with a new cryptocurrency $AmazonForest (assuming that we can link their values). Then the burning of the Amazon forest causes $AmazonForest to decrease in value, while burning some $AmazonForest tokens would increase the value of the remaining tokens. The economic incentives for $AmazonForest token holders are not in the exploitation of the Amazon forest, but in increasing the intrinsic or locked value of the Amazon Forest, i.e. its preservation.
Similarly, decentralization, seeking the common good, neutrality, and data that cannot be tampered with would be quite important features for a technology supporting mind uploading. Some SciFi technologies (see AGI earlier), are only conceivable when decentralization is part of them. Otherwise, moral hazards reach dystopian levels too easily.
The problems of centralization are best described as the absolute power that a person or group of people may have, and therefore all the consequences derived from it. These consequences are nothing short of cosmic horror. Considering the dangers of centralization, decentralization only needs to be its antagonistic force.
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