Decentralization vs. centralization: Where does the future lie? Experts answer

Published at: May 23, 2021

The dichotomy between centralization and decentralization in human history seems to be opposing forces gradually overcoming or being overcome by each other. And while one replaces the other, people are justifying both, finding philosophical or theoretical reasons for the existence of both of them.

Centralization

In the middle of the 17th century, British philosopher Thomas Hobbes published a book titled Leviathan (or, The Matter, Forme and Power of a Commonwealth Ecclesiasticall and Civil), where he formulates social contract theory. According to Hobbes, roughly simplified for this article, humans started from a summum malum — greatest evil — or a constant fear of violent death. People, driven by this fear, created a Leviathan, which is a state to which they delegate their power and the ruler promises them protection. This was the start of a prolonged process of centralization within society.

French philosopher Paul-Michel Foucault in the middle of the 20th century went deeper into this process of centralization of power. In his book titled Discipline and Punish: The Birth of the Prison, Foucault uses the image of Jeremy Bentham's plan for the “optimal prison”: the panopticon. In short, it represents a government that seeks control over the biopower and humanizes the punishment practices by making individuals feel as if the guards are a direct part of them.

And with that, the centralized system achieves its goal: the safety of citizens gradually rising over time, as Canadian-American cognitive psychologist Steven Arthur Pinker shows in his famous book The Better Angels of Our Nature: Why Violence Has Declined. According to Pinker, Hobbes’ Leviathan and Foucault’s panopticon, centralized, top-down, command-and-control structures and systems prove to be a working mechanism. But is it so?

The extreme representation of centralized governments is, on both ends, communist and fascist states, which many cannot claim to be working systems of control, considering the amount of violence those highly centralized states seem to cause. Another example is the World Wide Web, which was originally developed as a decentralized platform. But look at Silicon Valley tech giants now: they control and monopolize all the data and value contained in the Web 2.0. And another one — central banks, which even last year printed an absurd amount of money, causing high inflation rates all over the globe.

Decentralization

Back in 1990, Nobel Prize-winner Elinor Ostrom, an American political economist, stated in her book Governing the Commons: The Evolution of Institutions for Collective Action: “As long as a single center has a monopoly on the use of coercion, one has a state rather than a self-governed society.” And she continues:

“But until a theoretical explanation — based on human choice — for self-organized and self-governed enterprises is fully developed and accepted, major policy decisions will continue to be undertaken with a presumption that individuals cannot organize themselves and always need to be organized by external authorities.”

We now have those theoretical explanations, thanks to the invention of blockchain technology. Decentralization is simply the process of dispersing power and functions away from a central authority. Decentralized or peer-to-peer networks are participatory systems that resist control by a single, centralized power, with Bitcoin (BTC) and Ethereum/Ether (ETH) being the most known examples of decentralized architectures and systems. It is usually difficult — if not impossible — to discern a particular center.

Last year, the world witnessed the great rise of the decentralized finance (DeFi) sector, which has started a significant shift toward decentralization. Monopolized data, controlled by a few companies in Web 2.0, causes the redistribution toward individual users in the rise of the Web 3.0 movement, even to decentralized governance that is now theoretically, technically and practically possible.

Blockchain-backed, driven decentralization can potentially redemocratize society by regaining trust in the election process, or as some argue, by protecting democracy around the globe. While blockchain cannot solve everything, it still has the potential to solve a lot of economic and social problems such as increasing diversity and inclusion, bridging the gender gap, empowering the unbanked and combating economic injustice.

Dialectics

Centralization versus decentralization represents the law of the unity and contradiction of opposites, which is one of three core concepts of dialectics. One seems impossible without the other.

Digital currencies were invented as decentralized systems, but then central bank digital currencies (CBDCs) appeared to counter the decentralization process, which makes some argue that they are killing the concept of decentralization by bringing back control to governments, not people. Others argue that CBDCs will pique the interest of the masses only if they regain decentralization at their core.

The similar dialectical process has happened with exchanges, with some arguing that centralized crypto exchanges have the chance to lead the crypto space to the future, or even that centralization is necessary and that true decentralization comes from the roots of centralization. At the same time, some argue that decentralization has lost its meaning over time and it must be regained.

Another dialectical nature of the dichotomy between centralization and decentralization lies in the crypto regulation space. While it’s obvious that crypto has no future without regulation, and that compliant DeFi is a must for an industry to mature and flourish, what could be at what stake by sacrificing privacy and leading toward financial exclusion?

A circle has no end and no beginning, so the dichotomy of centralization versus decentralization should not be viewed in black-and-white, polarized colors. Finding a suitable consensus would be the best option. To find out what experts in the crypto and blockchain space think about this dichotomy, Cointelegraph reached out to them with the following questions: What’s your view on decentralization versus centralization? Would people embrace the more decentralized approach?

Bobby Lee, founder and CEO of Ballet:

“The world that we live in is actually very much centralized, meaning that there are natural elements, natural things that are decentralized; but society, the structure of a country, regulation, they are all centralized. So, it's always a mix and match, it's always yin and yang. And we're going back and forth.

For example, gold is decentralized, but when companies that offer gold for sale or investment step in, they centralize it — whether it's the issuance of gold coins or it's the offering of gold securities and ETFs.

Central Asian currencies started off as decentralized when digital currencies appeared. But when exchanges offer custodial storage, when exchanges offer trading, it turns out to be a centralized solution, if you will. But of course, there will be a continuation of more decentralized solutions, including decentralized exchanges, for example.

But at the same time, there has to be some centralized nature to things just because some people want professionals to come in and do things right, even investment vehicles. So, it's going to be a mix and match. I don't think the world will completely go decentralized.”

Chang Jia, founder of Bytom and 8btc:

“With the development of blockchain scenarios, especially decentralized finance (DeFi), we can no longer think about the choice of decentralization or centralization from the perspective of maintaining the basic operation of a public chain. If a few years ago the underlying architecture of the blockchain was not yet mature when it comes to how to build a worldwide decentralized blockchain, then people would be more inclined to explore the architecture design and solution of decentralization of rights, that is the first principle. And with the main network of many public chains starting and maturing, more and more upper layer protocols and scenarios began to appear and be applied.

It is no longer the first principle that some protocols or applications require complete decentralization of rights, as long as the underlying chain or scene ecology they are attached to is rights decentralized enough. These applications and protocols will pay more attention to a balance between decentralization and commercial operation, with commercial efficiency improvement as the first principle.

When people choose blockchain, they will still accept more decentralized methods. As mentioned above, people always strive for the right balance between decentralization and efficiency according to the actual situation.”

Cristina Dolan, founder and CEO of InsideChains, vice-chair of MIT Enterprise Forum:

“The decentralized immutable and transparent blockchain foundation is the real magic of crypto, and will be embraced by those who really understand the value. Before Bitcoin, there were numerous attempts at digital cash, but the transactions were not immutable and trustless.

The ability to transact in a trusted and transparent fashion without a central authority and the transparency to see the journeys of transactions to understand what is happening across the network isn't something that could be siloed or centralized financial networks can offer. If central banks want to gain adoption of their CBDCs, they should adopt a distributed architecture with transparency to encourage trust. Central bank-issued programmable money that can automatically pay fees or taxes without open transparency will create fear and drive more people to other cryptocurrencies.

The explosive decentralized finance innovation that is taking place has experienced some growing pains, although we will continue to see this space evolve. When it comes to exchanges, there is value in centralizing the on- and off-ramps to traditional financial systems. It makes it easier to force a KYC process at the endpoints.”

Da Hongfei, founder of Neo, founder and CEO of Onchain:

“From my perspective, I believe it’s clear that decentralization and centralization will exist on a spectrum in the future given both sides’ unique advantages and fallbacks — however, users will possess a true choice in terms of how and to what extent they embrace centralization versus decentralization.

Within the current paradigm, users oftentimes do not possess complete control over their data — rather, it is fragmented and scattered around the internet throughout various platforms and databases. By developing key decentralized technologies — from data storage protocols to DeFi — users can take back control of their data and directly engage with each other for optimized benefits. As the ongoing DeFi boom has proved, people are ready for decentralization, and I believe it will only accelerate from this point forward.”

Daniel Lv, co-founder of Nervos:

“Above all, the product market fit and usability like a good UI/UX and low transaction costs (e.g., gas fees) are the most important factors of a blockchain.

There are also different levels of decentralization, and what works for a user depends on their needs. For example, you could say DeFi on Binance Smart Chain is more centralized than DeFi on Ethereum, but it is still more decentralized than a bank.

Under the hood, decentralization is critical for a layer-one blockchain like Nervos. It is the base for security and the reason why we are here today. Nervos was designed with a unique layered architecture that provides the security and immutability of a fully decentralized public chain, while also enabling users to scale on our layer two with varying levels of decentralization.”

Denelle Dixon, CEO and executive director of Stellar Development Foundation:

“Decentralization as a whole has the advantage that systems answer the needs of a broader group of stakeholders. What I appreciate about decentralization is the leveling effect for participants — both the technology and the control are distributed and can be accessed by all.

People who have trouble with decentralization are generally those who fear a loss of control, as they are stakeholders in a centralized system. And with decentralized networks, there is no single point of failure like with a closed network that all rely on the same server; if a closed network’s server goes down, the service can fail.

On a practical level, what we need in order to embrace decentralization is to communicate exactly how it solves real-world problems. When decentralized systems allow economic opportunity, such as for the unbanked and underbanked, or enable frictionless financial transactions for businesses in developing countries, there’s a real motivation to adopt. Worldwide at different levels, women are marginalized and excluded from participating in their own economic success. Decentralization can bring access to financial services and empower women economically, which elevates and improves the economies where they work, earn and live.

Finally, the power of decentralized open networks is that it allows creativity and growth to come from everywhere, and specifically allows developers the opportunity to leverage the same technology while solving the problems and challenges that they see in their own region for their own users.”

Emin Gün Sirer, CEO of Ava Labs, professor at Cornell University and co-director of IC3:

“Decentralized services are absolutely the way of the future. People are tired of their data and access being manipulated by centralized gatekeepers, and are opting-in to services that respect their privacy and put them back in control. Decentralization is going mainstream, and it only takes one interaction with that power to get hooked for life.”

Jennifer Wines, vice president of Fidelity Private Wealth Management:

“We are living in exciting times, where we are experiencing a rapid shift from centralization to decentralization, as we reimagine the anatomy of our infrastructures. This shift to decentralization is happening within the workplace, transportation, retail, travel, currency, finance and beyond; therefore, this shift is impacting mostly all facets of life — positively.

Consider this: We are working remotely, hopping in an Uber to get from point A to point B, and turning to cryptocurrencies as a means of value and exchange. We’ve even seen the decentralization of department stores and hotels, a la Amazon and Airbnb, respectively. That said, it’s likely that everyone reading this article has experienced this evolutionary shift to decentralization, in one way or another. Further, it’s likely we will continue to embrace this shift because of its efficient and empowering attributes.

The efficient and empowering attributes of decentralization provide compelling fuel to sustain and support this increasing evolution. Decentralization is efficient and empowering because of its ability to solve for the historically asymmetrical nature of our infrastructures, where one side benefited more than another (many). Said differently, decentralization is here to stay, largely because of its bilaterally focused, incentive engineering. May the paradigm of win/win, win. ”

Kevin Chou, co-founder and CEO of Rally:

“Decentralized is better, but much, much more difficult to execute and remain committed to over time, as most of the business world doesn't understand how to partner or work within a decentralized organization. But the benefits are substantial. This is particularly true in the massive creator economy, as creators have gotten the raw end of the deal while enriching big, centralized tech platforms. Being able to control their financial destiny and connect with their fans on their own terms has been a significant driver of interest in social tokens.

100% decentralization is more difficult to achieve than some in our industry would care to admit. But I am fully committed to ensuring Rally becomes increasingly decentralized every quarter that goes by. The user experience for decentralized governance has improved immensely in the past few years, and will only get better. This model will become the ‘new normal’ in a lot of cases, as more companies turn to decentralized models guided by their communities, and people see how much more democratic it is for everyone to take the decision-making power out of the hands of a select few.”

Kevin Shao, co-founder of Bitrise Capital:

“I think centralization and decentralization are both a way of organization. We can't say which one is good or which one is not. In practice, we can both find a good application model. Under the management of the central government, China can operate efficiently and manage orderly. It can also deal with complex problems and find reasonable solutions.

Many Western ideas are suitable for decentralization, and the development of democracy in the west is also very good. Therefore, different historical and cultural conditions and different scenes determine which way is more suitable for the national conditions. For the people, we still need to see what kind of organizational form can bring more improvement and convenience to their lives. This is the most appropriate way.”

Tim Draper, founder of Draper Associates and Draper Fisher Jurvetson:

“I love decentralization. My incentive and my love for Bitcoin is around trust and freedom. A decentralized token like Bitcoin has so many people watching that we can trust it implicitly. The more centralized tokens that have a leader driving them are good as long as the leader is benevolent.”

Yat Siu, chairman and co-founder of Animoca Brands:

“In general, I consider decentralization to be the approach that is much more equitable and scalable. We believe that people everywhere will gladly embrace a decentralized approach… if/when they understand the tremendous value and opportunity being offered.”

Cointelegraph China contributed to four interviews.

These quotes have been edited and condensed.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.