An Urge To Decentralize (Part I)

Quick notes on decentralized marketplaces and the inescapability of centralization

It’s generally agreed that decentralization, so much exalted by the cryptocommunity, can and is doing a load of good in a wide range of spheres, including economy, politics, finance, trade and others. Let’s skip the origin of the concept stemming back from the first democracies and free trade.

Decentralization as it’s known now denotes organizational structure where daily operations, control and decision-making, resources and business processes are not concentrated in a single hub, but spread evenly throughout the entire structure. The advantages are quite clear — transparency, security, accessibility to all structure participants, significant decrease of chances that any of the resources or control could be exploited or some participants would be treated ‘less equally’ than others. ‘No single point of failure,’ — or so they say.

Economics, finance, trading and business are probably the most important spheres where blockchain is beginning to flourish. Let’s just say that so far over 90% of existing blockchain projects and ICOs deal with finance and business decentralization. If you think of the world’s most successful economies and countries with the highest life standards, you’ll mostly see that they use a lot of decentralized governing models, checks and balances systems, and by no means a lot of power is accumulated in single hands.

Decentralized marketplaces mean easier growth and scalability, much quicker on-the-ground decision-making and elimination of middle-men, as well as offering access to services and goods to a much wider audience.

Science and research could benefit from decentralization as well. For instance, blockchain brings to life closed decentralized testing environments which allow for a much higher accuracy of tests. A few research institutions that deal with medicine, genetic engineering and other highly technological spheres have announced such projects. The recent trend is leveraging AI — for healthcare, data science, trading or else.

In legal area, copyright is probably going to be one of the first applicable use cases, as blockchain offers very simple and efficient mechanisms for its proof. The latest big news in this field is Sony’s announcement. The tech giant is patenting a blockchain technology to protect their copyrighted content.

But is decentralization always a reasonable solution?

There has been a lot of speculations of late, with ICOs running rampant, whether decentralization always makes sense or not. A lot of blockchain-based projects seem to focus on decentralization for decentralization’s sake and do not create any new value for people. As Deloitte’s research shows, 92% of blockchain projects, created over the last 2 years are dead now. Which means there must be a flipside.

Centralized hubs generally reduce coordination costs when a business is operationally complex. This means not all business processes could be made more efficient through decentralization. But we believe that most can.

Acclaimed blockchain security is also a double-edged sword. Security is not merely transparency and inability of a process to be tampered with. Many agree that there’s always a human factor and sometimes an issue of trust which is not always about the tech.

An inflexible mediation process is good for protection when changes to the existing model imply great effort, but changes are often needed. In decentralized systems it may happen that funds are inaccessible during mediation, and the very process of mediation is very complex since decision-making is so spread out.

If you take decentralized marketplaces, absence of intermediaries goes down well giving the promised cost-effectiveness, but may appear ineffective in terms of customer satisfaction in the traditional spheres where a top-notch support and thus overseeing is a must. Which means that the best way to deliver an unparalleled service without introducing a control center is a decentralized marketplace where agents are highly professional.

So far no actual real world enforcement. The most common issue with anything decentralized. When things run smoothly — it works. Yet if an actual problem arises, there’s literally no one to turn to for a solution.

This probably shows that combined business models where centralized and decentralized systems meet could pose a good solution, especially for complex business structures. This is illustrated by many tech moguls which adopt DLT and decentralization for separate areas of their activities while sticking to their centralized corporate structure.

Curiously enough, the drive to centralize the decentralized is surfacing. Think about the platforms for building dApps, connecting other blockchains or generating new cryptocurrencies.