Decentralization is a phrase that gets thrown around a lot in the blockchain world. But how many of us have a full understanding of what that really means? Put simply, decentralization is defined as:
“Decentralization is the process by which the activities of an organization, particularly those regarding planning and decision-making, are distributed or delegated away from a central, authoritative location or group.”
Essentially when you break it down there is no “one ring to rule them all”. No one can control bitcoin…right? Systems operating on group consensus and direct democracy over one entity’s personal agenda certainly sounds like a healthier way to function but, like all things made by man, the situation plays out in life with a litany of flaws.
Understanding the Nuts and Bolts
It turns out Bitcoin, and most blockchains for that matter, are not as decentralized as one might think. To understand this, we need to deepen our understanding of decentralization even further.
To quote Ethereum Co-founder Vitalik Buterin:
“When people talk about software decentralization, there are actually three separate axes of centralization/decentralization that they may be talking about. While in some cases it is difficult to see how you can have one without the other, in general, they are quite independent of each other. The axes are as follows:
- Architectural (de)centralization — how many physical computers is a system made up of? How many of those computers can the system tolerate breaking down at any single time?
- Political (de)centralization — how many individuals or organizations ultimately control the computers that the system is made up of?
- Logical (de)centralization— does the interface and data structures that the system presents and maintains look more like a single monolithic object, or an amorphous swarm? One simple heuristic is: If you cut the system in half, including both providers and users, will both halves continue to fully operate as independent units?”
Given that the three top blockchains currently operate on what’s known as a “proof of work” (Mining) consensus model, this means that in order for blockchains to be politically decentralized, that ownership of the physical computers that process and validate transactions on the blockchain must be owned by a variety of organizations (or people). Now let’s take a look at bitcoin’s distribution of miners:
Looks decentralized right? Well let’s consider a couple things:
1) only 51% is needed to have dominance.
2) Ownership, affiliation and potential for collusion between businesses.
Considering this, take a look at this chart that outlines the difference between Chinese (red) vs non-Chinese (blue) controlled mining companies:
As it ends up being, he who controls the miners, controls the blockchain, needing only 3 or 4 entities to collaborate to create total market manipulation. This is a big part of why we have seen the aggressive push for “Proof of Stake” based blockchains.
Proof of Stake – A better way to be?
The popular candidate as an alternative consensus model to “Proof of work,” is known as “Proof of stake.” While this model hypothetically allows for better decentralization, it still leaves room for human error. On June 17th, 2018, the renowned blockchain EOS which operates on the proof of stake model issued the freeze of 7 accounts through the unanimous approval of its 21 “Block Producers.” This was met with an uproar of disapproval in the blockchain community. The action was taken as part of the EOS911 — a protocol which makes it possible to recover funds in cases of emergencies like thefts. What is particularly contentious about this move is that the decision was knowingly taken in violation of the rules laid out in the EOS constitution.
All of this shows that blockchains are still very much subject to human error. While the vision of being truly decentralized is still something to work towards, we have yet to truly accomplish it. However, the ramifications of creating a fully efficient and decentralized blockchain governance could open doorways to other avenues such as how we govern our countries and politics.