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Why decentralization matters

Recent events show that the more centralized institutions wield power and control, the more the world will react by moving towards decentralization.

"There are decades where nothing happens; and there are weeks where decades happen" – Vladimir Ilyich Lenin.

In 2020 the pandemic accelerated several trends that were already in play. Contactless delivery, remote working, the creator economy, VR, online schooling, Nationalism, and a growing distrust in institutions.

The pandemic directly and indirectly, widened the gap between the rich and the poor. Those who owned assets, properties, and equities, saw their portfolios continue to rise in value. Less fortunate workers, however, lost their jobs or were forced to risk exposure to the virus just to earn minimum pay. Many small business owners lost their businesses when lockdown after lockdown kept customers away.Closed Business

While COVID-19 swirled, building in power, growing exponentially in scale, a different kind of virus was also spreading. The rage pandemic. The virus of the mind.

It transpired that in the age of social media, a highly charged U.S. election set against the backdrop of a global pandemic is a recipe for the viral spread of disinformation and conspiracy theories. Radicalized by the dangerous combination of too much screen time, YouTube’s relentless algorithm, and a President prepared to push alternative facts, a not insignificant segment of the population began to embrace an alternative reality.

Some came to believe that COVID-19 was fake, a plandemic conspiracy propagated by Bill Gates. Donald Trump convinced a large number of his supporters that the election had been stolen from them.
MAGA Rally

According to a Reuters/Ipsos opinion poll taken last November, half of all Republicans believed that Trump “rightfully won” the election. With the president continuing to fuel this false narrative throughout December and into the new year, tensions were stratospheric by January 6th when tens of thousands descended on Washington and stormed the Capitol. It did not go well.

Why decentralization matters

In 2018, Chris Dixon, a partner at VC firm Andreessen Horowitz published an essay called Why Decentralization Matters.

Dixon argues that the early days of the internet were built on open protocols. “This meant that people or organizations could grow their internet presence knowing the rules of the game wouldn’t change later on,” wrote Dixon. “Huge web properties were started during this era including Yahoo, Google, Amazon, Facebook, LinkedIn, and YouTube. In the process, the importance of centralized platforms like AOL greatly diminished.”

In the second era of the internet, from the mid-2000s to 2020, the big tech companies — Facebook, Apple, Amazon, Netflix, Google (FAANG) built services that outpaced the capabilities of open protocols. The explosive growth of smartphones accelerated this trend as mobile apps drove the majority of internet use. Users moved from open protocols to the more sophisticated, centralized services.

The upside was that billions of people were given access to the internet and its products. The downside is it became harder for startups, creators, and others to grow their internet presence without the risk that centralized platforms would change the rules on them, taking away their audiences and profits.

Dixon argues “This stifled innovation, making the internet less interesting and dynamic. Centralization has also created broader societal tensions, which we see in the debates over subjects like fake news, state sponsored bots, deplatforming of users, EU privacy laws, and algorithmic biases. These debates will only intensify in the coming years.”

The above is exactly what happened as a response to the events in Washington. Over a period of around 36 hours, President Trump was permanently or temporarily banned from centralized internet services. The list includes Twitter, Facebook, Instagram, YouTube, Spotify, Reddit, TikTok, Snapchat, Shopify, and Pinterest. When Trump supporters moved to the unmoderated social media website Parler, Apple and Google removed the app from their stores, and Amazon took the unprecedented step of removing Parler from accessing its AWS servers. This effectively shut Parler down.Parler DNS errorThe Parler social media platform was essentially wiped from existence in an instant

Anyone who thinks they understand when censorship is a clear and straightforward decision, probably hasn’t thought about it enough. Whatever your politics, or stance on where the right to free speech begins and ends, for many, this was a sobering realization that centralized tech companies have the power and will to censor the President of the United States.

The repercussions of these actions have already begun and the implications are clear. The decade ahead will see a move towards decentralized sovereign communications, apps, payment rails, and money.

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For example, Signal, the encrypted messaging app shot to number 1 on the App Store this week. The Privacy coins – Monero, Dash, and Zcash shot up in value, even while Bitcoin was dropping. It is not an exaggeration to say that in the second week of 2021 the idea that decentralization matters went from theoretical to mainstream.

Bitcoin has been a decade ahead of this trend. It is the most decentralized, censorship-resistant protocol on the planet. Bitcoin was so elegantly designed, and yet so radical, that it has taken a decade for more than a fraction of the world to begin to grasp its true potential. As AngelList founder Naval Ravikant says, “Bitcoin cannot be coerced. That’s why it’s the most important experiment in the world.”

Former Coinbase CTO Balajis Srinivasan says “Bitcoin is now more valuable than Facebook. Over the next decade, decentralized blockchain-based services will provide morally, technically, and financially superior alternatives to American and Chinese tech companies alike.”

Srinivasan goes further making the analogy that “Communist Capital is centralized censorship by the state. Woke Capital is decentralized censorship by corporations. And Crypto Capital is decentralized censorship-resistance. Whether it’s a president censoring a billionaire (China), or a billionaire censoring a president (America), if you are neither a billionaire or president you are going to get censored.”

Unless you decentralize.

The risks if we don’t

What are the risks if we don’t decentralize? One risk is that it has already become clear that at some point in the next decade the blockchain space will come under sustained attack by the mainstream media’s narrative industrial complex.

Albert Wenger, a VC at Union Square Ventures says we are witnessing the emergence of the government-IT infrastructure complex. The risk, says Wenger, is that the government will be less inclined to try and generate competition in this space. “It is much more convenient to have just a few large entities that an executive agency can influence behind the scenes rather than having to bother with the rule of law. We have already had this in the payments space for a while where instead of targeted interventions against actual abuses payment providers withdraw support for companies in certain categories, most prominently anything related to sexwork.”
Witness the recent denial of payment services to Pornhub as an example. The legal cannabis sector has been similarly sidelined by an almost uniform denial of access to basic banking services.

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Where will this power be used next? Wenger says the obvious target is crypto and blockchain, which threatens the power of governments and large corporations. “A difficult set of topics that would require judicious law making and novel regulations. So much easier to just deal with it behind the scenes,” he says. “Or take encryption. Why bother trying to come up with good regulation? Get Facebook to backdoor WhatsApp and then have everyone agree that Signal represents too much of a risk and needs to be banned. The big companies are inviting this approach. It will be good for them and good for executive power. But it will be bad for democracy.”

Why decentralization matters

Dixon says that decentralized crypto networks align the incentives of network participants so they are able to work together toward a common goal — the growth of the network and the appreciation of the token. This alignment is one of the reasons Bitcoin continues to defy skeptics and flourish, even while new networks like Ethereum have grown alongside it.

Dixon says “the question of whether decentralized or centralized systems will win the next era of the internet reduces down to who will build the most compelling products, which in turn reduces down to who gets the best developers and entrepreneurs.”

The big centralized tech giants such as Google, Apple, Facebook, and Amazon (GAFA), have many advantages, including cash reserves, massive user bases, massive data leverage, and operational infrastructure. But crypto networks have a significantly more attractive value proposition to developers and entrepreneurs. If they can win their hearts and minds, they can mobilize far more resources than GAFA, and rapidly outpace their product development.

Dixon says that centralized platforms have been dominant for so long that people have forgotten there is a better way to build internet services. Crypto networks are a powerful way to develop community-owned networks and provide a level playing field for 3rd-party developers, creators, and businesses. “We saw the value of decentralized systems in the first era of the internet,” he says. “Hopefully we’ll get to see it again in the next.”

Web 3.0

This is the promise of Web 3.0, the decentralized internet. Web 3.0 imagines a future where users and their devices can interact with data, value, and other users via a substrate of peer-to-peer networks. No centralized third parties needed.

The pandemic accelerated the trend towards Web 3.0 Remote working, the growth of VR, eSports, and the creator economy are all part of this trend shift. The events in Washington have also accelerated this shift, but in different ways. The average citizen has never had the need to give too much thought to what would happen should the big tech companies turn against them. They should be thinking about it now.

Srinivasan says “Bitcoin is an exit from the Fed. DeFi is an exit from Wall Street. Social media is an exit from mass media. Homeschooling is an exit from industrial education. Remote work is an exit from 9-5. The creator economy is an exit from employment. Individuals are leaving institutions.”

The decade ahead will see a shift towards pseudonymity. Expect crypto tribalism, distributed cooperation, and hostile forks. The shift will be messy, however, there is a clear moral, technological, and economic case to replace legacy institutions with internet-native decentralized alternatives.

Decentralization matters. It won’t happen overnight, but it will happen.


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