Decentralization is not a fancy, uber-cool word that has emerged recently. It’s an idea that has long existed not just in computer science, but also in governance, strategy and management.
Decentralization, simply put, is taking back decision-making capability from a central authority and giving it to individual users. The need for a central authority is eliminated due to decentralization.
Decentralization leads to benefits like expedited decision making, motivation among individuals, increased trust, no chance for monopoly or biases in decisions, reduced burden on top management, among others.
In the context of blockchain, decentralization signifies the replacement of the central protocol-governing authority with a consensus-based protocol involving all nodes of the blockchain network. Transaction validation lies entirely with these consensus protocols.
The need for decentralization
The internet was decentralized by nature when it was made available to the public. It was intended to connect people and share ideas without any central body intervention. That was the early 90s.
With the introduction of Web 2.0, decentralization started fading away.
Oh, by the way, Web 2.0 is the era of the internet which started in the early 2000s. And this is characterized by the introduction of social media, mobile phones, and e-commerce on the internet. We are living in the age of Web 2.0.
So during the period of Web 2.0, we began to connect, interact, share ideas, and even transact, all through centralized services. Their services are owned by giants like Amazon, Google, Facebook, etc. These platform services lure the masses with the convenience and benefits it has to offer.
On the flip side, they continue to gather data from the users. This poses the risk that our data can be misused, hacked, or sold (possibly to someone with malicious intentions). With the user’s data at disposal, the government can carry out surveillance and even force censorship.
With Blockchain, we are about to step into the era of Web 3.0. Blockchain is the only technology that would truly reinstate decentralization by directly connecting consumers and providers. Data will not be owned by any platform but its true owner. It will re-establish the true purpose of the internet.
Blockchain enables decentralization in following ways:
‘Smart Contract’ is a piece of code that resides on (Ethereum) blockchain and executes automatically when certain conditions are met, all without the need of an intermediary. It is signed automatically once both parties have met the pre-decided condition.
Smart contracts are far more potent than their paper counterparts since they can streamline the transactions among many parties. And the fact that they reside on a distributed ledger (aka blockchain), they are verifiable, they pretty much rule out the chance of any conflict.
A smart contract is the most modest form of decentralized automation. The key characteristic of a smart contract is that there are a fixed number of parties involved.
A decentralized application is very similar to a decentralized program (or smart contract) but with a couple of differences.
First, unlike smart contracts, decentralized applications have an unlimited number of participants.
Second, decentralized application does not have to be related to finance.
Decentralized applications are often known by DApps. The most famous DApp is Cryptokitties which is developed on Ethereum blockchain. It’s a game that lets its user breed and own a cryptokitty. Each raised cryptokitty is unique and can’t be replicated. Cryptokitty is not a cryptocurrency, it’s just a crypto-asset and a collectible.
Decentralized Organizations (DOs)
Speaking of today, we have a hierarchical structure in the (most) organization. The idea of a decentralized organization is to re-structure an organization by decentralizing it.
Unlike traditional organizations, there is no rigid structure within the decentralized organization. Decisions are not made by top management but are delegated to middle and lower-level managers.
This makes space for top management to focus on critical decisions. In decentralized organizations, people interact with each other based on the protocols defined in code. This code resides on blockchain.
Decentralized Autonomous Organization (DAO)
DAO is an entity that lives on a blockchain network and performs its operations autonomously. In other words, rules to carry out tasks are coded. And the code is open source. Although, it relies on humans to perform certain tasks that automation cannot achieve.
Curator is the person who is responsible for evaluating and managing the code for the community. For the rest, DAO runs by itself.
The apparent difference between a decentralized organization (DO) and a decentralized autonomous organization (DAO) is, well you must have guessed, the word autonomous. In DO, humans are responsible for making decisions. In DAO, however, the decisions are made by DAO itself (through code).
In addition to that, a DAO is nonprofit.
DAOs were first introduced by the Ethereum blockchain. Interestingly, in June 2016 it raised over $150 million in crowdfunding.
Unfortunately, it was hacked, and $50 million worth of Ether were siphoned off. However, the stolen money was restored, and the hack was successfully reversed.
Decentralized Autonomous Corporation (DAC)
DACs are almost the same as DAOs, except that DAOs are non-profit whereas DACs make money by selling its shares and paying dividends. DACs are the subclass of DAOs.
The goal of DACs is to earn profit by offering shares to participants and paying dividends to its shareholders. Like DAOs, the business is automated through code without human involvement.
Decentralized Autonomous Society (DAS)
Please note that DASs does not aim to form a society without intervention or need of a government. It just means that all government services like driving license, identity card, marriage certificate are offered as a blockchain solution. DASs can potentially be the answer to a corrupt government and system that is not trust-worthy and transparent.
Decentralized Autonomous Societies is just a theoretical concept that might look like something out of a movie. But it’s completely achievable on a blockchain.
Decentralization has been a far-fetched dream in modern society. On the other hand, decentralization has been essential for a healthy, prosperous, and transparent social ecosystem.
Sure, we have partial decentralization in some aspects of life. But implementing complete decentralization is very difficult to accomplish.
Blockchain is making this far-fetched dream into a living reality, albeit slowly. Certainly, it will face resistance from the major players who intend to hold the reins of control tightly in their hands.