Today everybody is talking about decentralization. It is one of the most hyped words and since the broad awareness of blockchain technology the d-word is the new e-word. But what does decentralization mean and why is it so important? Looking up the word “decentralization” in Webster’s dictionary one will find the definition: “Decentralization is the dispersion or distribution of functions and powers".
In nature the typical example for decentralized systems are insect colonies. When observing an ant hill one can easily ascertain that each ant acts autonomously. On the other hand, each insect contributes to a higher, common goal: the construction and survival of the ant colony. Together these colonies create incredible structures. Since roles are clearly defined by birth the “program” of each ant is predefined. Each insect acts according to this program. Communication is done by pheromones and geared to specific needs, such as foraging or nest defense.
Nevertheless, an ant colony has one central weak spot which blockchain technology doesn't have: the queen. Since the power of reproduction is focused on one individual, the whole system relies on this. If the queen dies, sooner or later the colony dies. By design, blockchain technology does not rely on such central reproduction needs.
When searching the internet for the terms “centralized” and “decentralized”, one quickly come up to the following figure:
This figure is originally from a publication of Paul Baran from 1962 about distributed networks. Baran describes the risks of a centralized network structure (A) and on the other side, the advantages of a distributed network structure (C). A decentralized network (B) for Baran is still a star shaped network with some kind of additional links. Since this figure is often used without taking in account the whole publication and the time and purpose it was written, a discussion about decentralization vs. distribution arose.
Vitalik Buterin took up this discussion about decentralization in his blogpost6 and introduced several levels of decentralization:
• Architectural decentralization
• Political decentralization
• Logical decentralization
For Buterin “blockchains are politically decentralized (no one controls them) and architecturally decentralized (no infrastructural central point of failure) but they are logically centralized (there is one commonly agreed state and the system behaves like a single computer)".
Centralized systems are more efficient since in a command and control structure complex agreements are omitted. On the other hand, such a system has a higher vulnerability. The whole system depends on the central unit. Decentralized systems need more communication between the nodes but are in a way fault tolerant. Decentralized systems have a long history in computer science and a well-known problem dealing with a decentralized system is the Byzantine Generals’ Problem.
Satoshi Nakamoto described in his paper about Bitcoin and blockchain10 one solution to this problem by using the proof-of-work algorithm. The algorithms facilitated a majority agreement in a decentralized system without a central authority. Furthermore, potentially untrustworthy parties have no chance to disrupt the system on the long run since the rules let an honest chain always win over a dishonest one.
Decentralized in the context of blockchains is usually explained by the fact that:
• nodes are locally distributed over the earth and logical distributed over the internet,
• decisions are spread over the nodes and synchronized through a consensus algorithm,
• rules all nodes obey are incorporated inherently in the software which is used by all nodes.
“A crucial part of blockchain technology is its ability to produce honesty in an anonymous environment".
As it can easily be seen decentralization cannot be reduced to a purely technical view. In an ecosystem which is built by participants with commercial or power interests also social and economic factors are involved. Special interests of groups or nations might undermine decentralization. At the same time decentralization of a blockchain network is a flowing process. Even if a high degree of distribution is reached this can change over time and therefore has to be monitored constantly.