by Matt Mckibbin
Decentralization isn’t a buzzword. Decentralization is the future. Fundamental financial systems, new and exciting technologies, and entire political structures will be revolutionized by decentralization. What is “decentralization?” Why is it important? Who does it empower? Why should you, an individual, care about its impact?
Merriam-Webster defines decentralization as “the process of redistributing or dispersing functions, powers, people or things away from a central location or authority.” Through decentralization, decisions go from a top down model to a bottom up model, which in turn gives the individual more ability to affect change within the system.
The decentralization of systems, technology, and political structures has been discussed and theorized about in writings since French Revolution. Alexis de Tocqueville proposed a transition away from “centralized” control as a way to harness the dynamic power of individual citizens and counter encroachment of their freedoms by a bureaucratic central state. Tocqueville wrote, “those who aspire to unite their efforts to create common prosperity,” benefit greatly from decentralization.
He was right. Today’s emerging technologies facilitate the creation of decentralized systems on a global scale, allowing individual makers and entrepreneurs to transform Tocqueville’s ideals into reality. When discussing disruptive technologies such as cryptocurrencies, 3d printing, mesh networks and the sharing economy the concept of decentralization often arises. How is decentralization being applied today?
1. Trustless Banking
When we use Dollars or Euros to complete financial transactions, we place our trust in a central authority such as the Federal Reserve or the European Central Bank. We trust that they will manage their respective money supplies properly and take effective measures against problems, such as counterfeiting, and to regulate issuance. The problem with central authorities is that no one person is on the hook for mismanagement of interest rates, or funds. For example, Ben Bernanke infamously proclaimed there was no threat of recession or housing bubble looming in late 2006 to 2008. We found out the hard way he was wrong. Was he fired? Forced to resign? Not even close. He was hailed as a hero for implementing trillions of dollars in bailouts and the most extreme monetary policy ever put into place in the history of the US. When a monopoly exists on a certain good or service, market competition cannot work to allow the best product or service possible. The freedom to choose doesn’t exist and we are all worse off because of this. Incentive structures are built around consolidated power with zero personal risk to the creators.
Decentralized currencies, such as Bitcoin, are based on a system where power and risk are shared. Users know for certain that agreed-upon rules will be followed without trusting one specific institution. Bitcoin’s underlying code is open source, meaning thousands of experts worldwide can analyze, develop, and improve it. If users find themselves unsatisfied with the rules and implementation of Bitcoin, a myriad of competing currencies exists for them to choose from — all because developers can create competing products. In this sense, a monetary reformation is underway simply by allowing anybody in the world to create their own version of currency. As these currencies take hold, they provide an alternative to central banking authorities, bypassing a system which inherently encourages those in power to commit acts of corruption.
2. Middlemen Are Increasingly Irrelevant And Cost You Money
When you use your credit or debit card, your bank partners with companies like Visa or Mastercard and they take a percentage of the transaction away from the merchant. This fee is usually 3 or 4 percent of the total transaction with each middleman taking a portion. As shown by CreditCards.com, the process involves not only the merchant and the purchaser, but an acquirer, card network, and issuer. When using a peer-to-peer (p2p) cryptocurrency like Bitcoin, you can choose to pay a fee for faster confirmation but the payment goes to straight to the other peer on the network. Fees are approximately 0.0001 BTC or 2 cents per 1KB of data in the transaction. The network doesn’t care who you are, where you are sending to, or how much you send.
Even massive web merchants such as eBay or Etsy can be disrupted by this new wave of decentralization. eBay charges a middleman fee of 10% o and Etsy charges 3.5% of each sale made using their platforms. Up until this year, such services built the price of providing sellers with a large customer base and robust ratings system into the pricing model of the products being sold. How do we decentralize that system?
OpenBazaar is providing a marketplace which does not depend on an expensive-to-maintain centralized service. Instead of logging into an online marketplace, users install OpenBazaar on their computers and connect directly with other users on a p2p network. They can then buy and sell goods directly from each other. OpenBazaar does not collect fees or information on transactions and does not control which items users can offer for sale. Reputation and identity is provided by user ratings and integration with identity services such as OneName. When a dispute arises, instead of employees at eBay or a suggested third party arbitration form making the final arbitration decision, other OpenBazaar users chosen by market participants resolve the issue. In this way, the application’s reputation is built by creating a portfolio of just arbitration cases.
3. Illuminating The Path to Energy Independence
Energy production in most areas of the industrial world is a centralized process. Utility companies spend billions of dollars on capital equipment, infrastructure, and maintenance to deliver the electricity needed to charge a phone, power a house, or tweet out blog posts about decentralization.. Methods of power generation and distribution have evolved over time as technology has improved. While bringing billions of people out of poverty over the past century, centralized power generation still comes with its own environmental, political, and geographical hurdles and externalities The use of fossil fuels contributes to climate change, ocean acidification, and scarce non-renewable resources. 1.3 billion people still do not have access to electricity.
One potential vehicle for change: decentralization.
Personal energy production is set to decrease our dependency on the centralized power grid. Solar panels have decreased in price per watt by over 100 times in the past 40 years. and worldwide capacity is growing exponentially. Companies like SolarCity and SunRun aim to provide residential, commercial and government agencies the ability to produce much of their energy from that flaming nuclear reaction in the sky. When combined with personal power storage such as Tesla Powerwall, self-sufficient communities and microgrids lay the groundwork for individuals to produce their own power. This trend moves us away from the old — and environmentally costly — model of energy production.
4. Privacy In A Post Snowden World
In the wake of the Snowden revelations, privacy of financial and social information has been hijacked by the NSA and other intelligence agencies. Whether it’s a financial transaction, phone call, email, or text, our information is being recorded and stored on a massive scale. Facebook, Google, Twitter, and other popular social media providers give us free services for the use of our data. They sell that data to advertisers competing for our attention. Authorities like the NSA can subpoena our data from those companies and use it without our permission. Personal encryption is now key to combat violations of privacy.
Companies such as Gems and Synero are creating new types of decentralized social networks that are encrypted end-to-end with the data stored in a decentralized database. Gems and Synero make advertisers pay for your attention on the network using native tokens. Transfer of information between friends is always free, but your attention is valuable to all parties involved. These models may take a while to catch on and the social media giants won’t go away, but users can now choose to protect their social data, and redefine and benefit from the networks they create.
In addition to social data, our financial records are stored in large central databases prone to hacking and theft. When using a credit card online, users give their names, billing addresses and credit card numbers. Hackers can find vulnerabilities in data storage systems and steal that information. For example, in late 2013 Target had its credit card databases hacked, affecting up to 110 million people.
Financial systems with no centralized store of information to crack limit risk to the individual while reducing the incentives of hacking. Decentralized systems like Bitcoin require no personal data. To enhance privacy even further, users can utilize wallet software like Samourai Wallet or a bitcoin mixing service combined with a VPN, preventing wallet or IP addresses from being tied to a purchase.
5. Manufacturing Your Independence
Industrial manufacturing is a centralized process. Companies typically invest large sums of capital in specialized manufacturing equipment and protect their investment by subjecting product designs and schematics to intellectual property laws. Such laws can strangle innovation which would otherwise take place if ideas were freely accessible. Hoping to fight intellectual stagnation, Tesla recently open-sourced their patents stating “All Our Patents Are Belong To You” allowing innovators to build upon what they’ve done.
Open source CAD files and 3D printing are revolutionizing the way humans produce physical objects — bridges, clothing, maybe even organs. With a 3D printer and accessible materials, anybody can download 3D Computer Aided Design files off the internet and print parts to almost anything. 3D printing decentralizes the process of manufacturing so the individual can not only design parts and pieces, but produce them at home. Uploading schematics onto the internet and distributing them via a torrent site makes the data permanent.
The ability to manufacture and assemble parts to prohibited items may eliminate the ability for governments to ban guns. Companies like Defense Distributed have already released working prototypes of a 3D printed pistol called “The Liberator”. Upon its release, The US State Department ordered that Defense Distributed’s plans be “taken off the internet”. The government banning certain files from the internet after they’d already been uploaded to Piratebay and Mega was less effective than banning alcohol consumption in the 1920s or stopping drug use with the war on drugs.. These advances in manufacturing empower innovative entrepreneurs to create ever changing the balance of power between liberty and security.
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