Decentralisation, Blockchain, and the Future
If you’ve spent any time in the crypto space you’ve probably heard the term decentralisation. It’s even made its way into the title of various blockchain-based products like Decentralised Finance (DeFi), Decentralised Autonomous Organisations (DAOs), and even Decentralised Applications (dApps). But what exactly does it mean?
As we’ll soon learn, the scope of decentralisation is immense. It reaches all the way from the device you’re using to access this article, to displaced citizens halfway across the globe.
What is Decentralisation?
In a nutshell, decentralisation refers to a broader distribution of power and decision making. The term decentralisation applies to many fields. You can find examples of decentralisation in systems like government, public administration, economics, private businesses, and, crucially, in technology.
Decentralisation can be understood as a type of organisational structure. In a decentralised framework, the aim is to distribute power throughout the organisation, away from a central authoritative location or group. This applies particularly to planning and decision making. In a decentralised organisation, the higher levels of management delegate authority and decision-making capabilities to the middle and lower levels of management.
Because power is more equitably distributed, it allows for better-matched decision-making abilities. Higher tiers of management can devote their time to focusing on major decisions for the organisation, like business expansion and diversification, while the lower levels of management can manage the day to day operations along with more minor decision making.
These characteristics are the reason why the decentralising power of blockchain technology is so exciting. It has the potential to decentralise not just the internet, but also logistics, governance and how we run organisations.
What is Centralisation?
Centralisation is a structure where, typically, only one individual has the authority to make important decisions. These include choices that need to be made about prominent topics like resource allocation and the primary strategic direction of the company.
The current version of the internet, Web 2.0 is largely defined by centralisation due to its architecture. The way it’s structured means that users are dependent on intermediaries to access the many benefits that this second iteration of the internet has had to offer.
Massive companies like Twitter, Google and Facebook gained their power by serving as those necessary intermediaries. In the intervening years, they have reaped huge benefits from collecting and leveraging user data while capitalising on user-generated content, leaving its users with very little to show for all of their time and effort.
Centralisation in an Organisation
Many companies start off with a centralised organisational structure before they scale up. In the case of small businesses (the majority of which are centralised), the owner is likely to make all the decisions on things like product design, services, and how to proceed with the strategic direction of the company. Once a company becomes bigger and starts to serve a larger audience it may continue to have a centralised form of governance or institute a decentralised organisational structure.
Businesses do not have to be small to be centralised. One of the most famous examples of a company that has maintained a centralised management structure, despite growing massively in scale, is Apple.
Why Apple is Centralised
Apple has long been known for its high level of centralised control, particularly when it comes to the company’s strategic initiatives including new product development and which markets to operate in.
Much of the decision-making responsibility at Apple lies with the Chief Executive Officer (CEO). Up until 2011, that figure was Apple co-founder Steve Jobs. Before he passed away in 2011, Jobs named Tim Cook as his successor who serves as the current CEO of Apple.
It’s not uncommon for businesses that function in a rapidly changing technological environment to have a centralised management structure. It helps them to communicate a clear vision and exert strong control over the direction of the company. In a centralised environment such as this, lower-level management is often limited in their decision making power.
Why Google is Decentralised
Compare this to the behemoth Google, which has an admirable decentralised organisational structure. Their product groups and divisions, from online search to Google Pay, are given the freedom to work independently. Employees have the opportunity to grow their leadership skills and pursue what they believe to be the most beneficial investments for their division and the company.
There is an ongoing debate about which of the two systems is superior: centralisation, or decentralisation? Each organisational style has its advantages and disadvantages. But in the end, it comes down to which elements you want to prioritise.
How Decentralisation differs from Centralisation
In a centralised organisation, power and authority rest with the upper levels of management. Conversely, in a decentralised organisation the authority, responsibility and accountability are dispersed across various levels. Let’s examine some of the key ways that centralisation and decentralisation differ from one another.
Quick Decision Making and Implementation
A key difference between centralisation and decentralisation is the time it takes to make and implement a decision. With centralisation, the power is concentrated with one person or in one location. As a result, the decision takes a lot longer to be implemented throughout the company since the message needs to travel across departments and also be adapted for different contexts. Similarly, if you’re a lower-level manager and you need to make a quick decision, but don’t have the authority to do so, it could damage your division or even the company as a whole.
Decentralisation’s crucial advantage in this instance is that the decisions are being made in much closer proximity to the people who will be executing them. This means that decisions aren’t being relayed multiple times from one central location. It also reduces the opportunities for miscommunication. The quality of decisions also tends to be higher because those making them have a more intimate knowledge of the specific problem since they are more likely to have experienced the issue first-hand.
Uniformity and Control
Centralisation allows for better control over the organisation’s activities. Since the decision making power is centred on one location you can ensure consistency in operations and uniformity in decision-making when implementing a new company-wide strategy.
With decentralisation, there’s more opportunity for incongruity since autonomy is dispersed throughout the organisation. Managers will likely be tempted to customise the operations in their division to maximise efficiency. In a decentralised structure, it’s important to ensure that alterations in one division of the organisation won’t disrupt the operations of another division.
Democracy and Employee morale
Centralisation has its advantages, especially when it’s executing a singular vision from its top leader. However, when it comes to empowering employees and facilitating a democratic structure they don’t fare quite as well. Employees can often feel like a cog in a machine that doesn’t value their individuality, which in turn has a negative impact on overall morale.
Decentralisation on the other hand offers a more democratic environment where employees can contribute to governance in a number of ways. It also empowers employees to play a bigger role in the company and facilitates leadership skills. It provides practical exposure for mid and lower-level managers, creating a valuable source of promotable employees who have not only demonstrated, but also enhanced their managerial skills.
Why is Decentralisation so Relevant Today?
Centralisation and Decentralisation have distinct benefits and disadvantages, and neither organisational style will be perfect in any and every scenario. But why exactly is decentralisation so relevant today? There are several arguments that tend to be raised when discussing the important role that decentralisation has to play in the world today.
Decentralised systems rely on many separate components. Consequently, they are less likely to fail accidentally since the power isn’t centralised in one place. You can think of it almost like a power grid. If you have multiple sources of power, then one station failing won’t cause a widespread outage. However, if one station provides power for a vast area then that outage has a much more far-reaching impact.
A centralised system typically has sensitive central points of control, which can yield tremendous economic gain to attackers. Decentralised systems don’t have this same vulnerability since they are much more expensive to attack, destroy or manipulate, without the same level of economic payoff.
Collusion and corruption is an enduring problem across industries, from large corporations to national governments. The selfish acts of a few, harms scores of citizens, customers, employees, and the general public. Because decentralisation is so transparent, it makes it much harder for its participants to collude in ways that enrich themselves at the expense of other participants.
Blockchain Technology and Decentralisation
Now that we have a clearer understanding of how centralisation and decentralisation function and why it’s beneficial, let’s take a closer look at their relationship to blockchain technology.
Decentralisation is a fundamental component of blockchain technology. Nowhere is this more apparent than in the way that blockchain technology leverages decentralisation through its peer-to-peer network. This type of network distributes data across different nodes.
The main thing you need to know about nodes is that they are (essentially) devices that have an internet connection like laptops, computers and larger servers. These nodes play a fundamental role in blockchain technology’s ability to be decentralised. Without them, blockchain data would not be accessible.
Four Key Benefits of Decentralisation and Blockchain technology
The participation of multiple members, their devices, and the nodes they provide is what makes blockchain accessible. On a decentralised blockchain network, every member has a copy of the same data in the form of a distributed ledger. This has a few notable implications and results in some of blockchain technology’s most important benefits.
1. Trustless and Permissionless
With decentralised blockchain software no one needs to know or trust anyone else. Every transaction is recorded across the distributed ledger. If a member tries to alter their ledger or if it’s accidentally corrupted in some way, it will be rejected by the majority of members within the network.
2. Protection against Fraud and Corruption
When transactions are recorded on the blockchain they cannot be deleted or changed. Prior to a ‘block’ of transactions being added to the blockchain, network participants need to agree that the transaction is valid through a process known as consensus. This ‘block’ is then added to the ‘chain’, which is how we get the word blockchain! The blockchain then creates an unalterable record of transactions with end-to-end encryption, preventing fraud and other unauthorised activities. Pretty impressive.
3. Fewer points of Weakness
When a system is decentralised it can reduce the points of weakness, specifically where there is too much reliance on specific actors. These weak points can result in systemic failures. For instance, if Twitter’s servers fail, users would be left without access to their content on that platform or its communication services. Decentralisation would prevent this by having far more backups.
4. Improved Data Reconciliation and Sharing
When companies exchange data with their trusted partners it usually gets stored in each other’s databases. Whenever that data needs to be passed along or referenced it creates an opportunity for data loss or incorrect data to enter the system. A ‘master’ copy is also vulnerable to irreversible alteration or deletion. However, when you have decentralised data storage, every participant has access to a real-time, shared version of the data.
Decentralisation and the Blockchain Ecosystem
Blockchain technology and decentralisation have many demonstrated advantages and are bringing about significant changes in the online space. Over the past decade, blockchain technology has enabled a constellation of new applications.
Cryptocurrencies, non-fungible tokens (NFTs), decentralised apps (dApps), and decentralised finance are all key players in the emerging decentralised blockchain ecosystem. Each of these applications is built on blockchain technologies and as a result, are decentralised.
Cryptocurrencies: Cryptocurrencies form a central part of this ecosystem and have played an integral role in the creation of blockchain technology. Bitcoin is widely considered to be the first cryptocurrency and was created by one programmer (or, potentially, a group of programmers) under the pseudonym Satoshi Nakamoto. As part of its implementation, Nakamoto devised the first blockchain database. This has facilitated a new era of blockchain technology and decentralised digital assets.
DAOs: Decentralised Autonomous Organisations, or DAOs (pronounced ‘dows’), are defined by decentralisation. It’s right there in the title. These organisations are built on blockchain technology and smart contracts. These mechanisms allow a collective of people to form a decentralised organisation where everyone has equal power and voting rights.
NFTs: One of the most important characteristics of non-fungible tokens (NFTs) is that they can verify digital ownership. This has had a huge impact on the lives of digital artists. Previously their work could easily be copied by anyone online, but ownerships can now be verified thanks to decentralised blockchain technology. NFTs can tokenise anything from digital artworks to real estate. NFTs have some very exciting possible decentralisation applications. One example would be using digital artwork as collateral in a decentralised loan.
Decentralised Apps (dApps): dApps may look and feel like normal apps, but since their backend code runs on a peer-to-peer network (blockchain), they offer significant benefits. Currently, dApps are still in the early stages of development but are an indicator of a shift away from centralised power.
Decentralised Finance (DeFi): Decentralised Finance (DeFi) is set to disrupt traditional centralised banking models. DeFi apps, in particular, will be well-positioned to do this since they are projected to be cheaper, more secure, and trustless thanks to its underlying decentralised blockchain technology.
How Decentralisation Could Make a Difference in the World
In 2018 the UN released a report entitled ‘The Future is Decentralised’. In it, they review a series of pilot projects that demonstrate how blockchain technology can support their sustainable development goals. Something that we should all care deeply about.
In the report, they describe how blockchain technology can ensure efficiency, transparency, and trust in development aid, digital identity, remittances, supply chain management, energy, and property rights. Each of their pilot projects demonstrates how blockchains can be a valuable tool for governments, regulators, private companies, and civil society to establish trust, tackle corruption and distribute resources. The report also highlights some of the obstacles and limitations of an emergent technology like blockchain.
Decentralised Identity Documents: A UN Case Study
In one of their case studies, they examine how digital identity technology can be supported through decentralisation and blockchain technology. Most of us don’t think twice about whether we can prove our identity. You probably have a driver's licence, bank account, or physical ID to prove who you are. It’s easy to take our ability to establish our identities for granted without considering how essential it is to the smooth running of the modern world.
According to the world bank, there are currently 1.5 billion people — one-fifth of the world’s population — that do not possess the fundamental ability to prove that they are who they say they are. In many ways they are invisible. Consequently, they remain vulnerable to exploitation, abuse, and trafficking.
This is an area where blockchain technology and decentralisation could make a huge difference. Since they are distributed and open source, they can resolve the fundamental distrust that hinders current digital identity systems and prevents them from operating effectively.
The result would be transformative. New segments of the global population would have access to basic banking services for the first time. It would also transform the ease with which forcibly displaced populations could carry their identities with them across borders and receive financial aid without risk. The UN has already instituted digital wallets to transfer aid to vulnerable individuals, but without identification, these wallets lack security and verifiability. Decentralisation and blockchain technology could change all that.
Further Examples of Decentralisation
There are a range of examples of how decentralised applications could be implemented to address different global issues, especially for some of the world’s most vulnerable populations.
In countries that have chronic underemployment and poverty, people are often forced to work far from home. The money that they send home to their families, also known as remittances, has a profound impact on local and national economies. Unfortunately sending money through traditional Money Transfer Operators (MTOs) can be slow and expensive. This is where decentralisation can have a massive impact. Not only are decentralised, blockchain-based alternatives much faster, they are also secure, resilient, and dramatically decrease the cost of transfer fees.
Supply Chain Management is another area where decentralisation and blockchain technology has immense potential. The COVID-19 pandemic has brought renewed awareness of the weak points in our global supply chain. Supply chains operate across jurisdictions and are often devoid of regulation or effective governance. As a result, workers are more likely to be exploited while environmental damage and irreversible ecological impacts continue to escalate. Blockchain can help these systems become more efficient, transparent and accountable.
The Future of Decentralisation
Decentralisation has the capacity to transform global systems and change lives. From helping impoverished citizens gain access to identification technology to aiding them in their ability to send money home to their families, the possibilities of decentralisation carry immense human value.
Similarly, decentralisation can benefit our vulnerable ecosystem by improving logistics and supply chain management structures. Even small improvements can have far-reaching impacts on economic growth, working conditions, inequality, the climate, and the biosphere.
It is vital, however, to bear in mind that blockchain technology is still very young and its applications need to be carefully monitored as it develops. Blockchain technology won’t be the solution to every situation or context, but there is still huge value in pursuing the many potential applications for this technology!