The rise of decentralized systems has made waves in just about every industry, from healthcare to publishing.
Ethereum was launched on July 30, 2015, spurring a flurry of business applications built on top of its system of smart contracts. Some skeptics denigrate these innovations as " solutions looking for problems ." But for many, solutions that render processes of value exchange more transparent, secure and democratic are worthwhile regardless of how they were conceptualized. However, there are aspects of blockchain-backed networks worth delving into that don't get as much air time as the usual critiques.
The most transformative aspect of blockchain technology is its capacity to decentralize systems of exchange and therefore lessen the threat of corruption posed to centralized entities, such as governments, banks and corporations. Bitcoin has the capacity to assist those in unbanked nations to enter the global economy by eliminating the cost-prohibitive hurdles of acquiring a bank account and paying high transaction and exchange fees to trade across borders. Decentralized systems can empower people in oppressed nations to resist tyranny and web users to protect themselves from unwanted surveillance .
The benefits of decentralization may be clear, but the path to achieving it is often more ambiguous. A recent Medium post, " Quantifying Decentralization ," coined the term "Nakamoto coefficient" to describe the level of decentralization within a network. The article addresses the fact that if any of the subsystems within a decentralized network become compromised, the entire network is impacted. It goes on to break down the theory behind decentralization.
In simple terms, a system is most decentralized when value is spread equally amongst its users. The opposite of decentralization is centralization; in the most extreme case of centralization, all value is held and controlled by a single entity. Applying this theory to the Bitcoin blockchain entails an examination of the set of decentralized subsystems composing the blockchain (i.e., mining, exchanges, nodes, developers, clients, etc.). If any single subsystem becomes more centralized, the entire Bitcoin blockchain becomes less centralized, and, therefore, less secure. The Nakamoto coefficient can be used to determine the minimum level of decentralization required for ensured security and functionality.
These theoretical questions pertaining to decentralization should be taken into account when building distributed networks. By becoming aware of levels of reliance on centralized subnetworks, developers can work to correct for any bottlenecks in distribution. Game theory and economic incentive models can assist in achieving ideal levels of decentralization.
To put these theories in context, take the AdLedger consortium as an example. The goal of AdLedger is to create a layer of infrastructure that the ad tech ecosystem can rely upon, creating a peer-to-peer network with a common "ledger" from which to read and write. In order for adoption to occur and value to be created, we need to pick the right battles first. Measuring and thinking through what benefits decentralization brings to each working group - including those dedicated to General Data Protection Regulation (GDPR) , reconciliation, payments, data security and targeting - will need to be the first tasks at hand.
It's important to remember that blockchain technology is not an inevitable harbinger of change, especially if blockchain networks fail to live up to the promise of decentralization. By measuring levels of decentralization and how close they are to delivering on that promise, developers are more likely to succeed in building systems that are more secure, transparent and democratic. Should systems achieve true decentralization, these networks are likely to overtake centralized networks and disrupt many industries as we understand them today.
Disclosure: Adam Helfgott is the CEO and co-founder of MadHive, which is a founding member of the AdLedger consortium.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
