Decentralization seems to be the buzzword of the decade. At its root, it's a bottom-up approach to running an organization or network where authority is delegated and spread among many participants. They in turn feel empowered to manage and contribute to the system.
It's a growing trend since the 2008 Great Recession and emergence of Bitcoin, whose blockchain network (a decentralized method of securing transactions) is powered by individual nodes who are not controlled by a single individual or entity.
Collectively we're all just starting to understand exactly what this means in a practical sense. But what we do know is that adoption is increasing: According to a 2019 Deloitte survey, 53% of respondents say blockchain has become a critical priority for their organizations in 2019. That's a 10% increase from last year.
The real question now is - why is everyone so excited about the future of this technology? Below are the major 3 advantages of a decentralized system.
1. Users can participate in a trustless system
Trust in institutions is near historic lows. Google, Facebook, and other corporate giants have received their share of controversies in national headlines. It's no surprise that many consumers, including Millennials and Generation Z, are uncomfortable putting sensitive data, money, and personal property under the control of a central authority.
"Decentralization solves trust issues by empowering multiple participants to manage a network. Users don't have to trust a central authority, and protocols are designed to prevent bad behavior," says Poseidon Ho, general partner of #OUTLIERS. The San Francisco based venture accelerator will host the Outliers Hashed Conference, featuring a pitch competition with nine startups that showcases the power of blockchain.
VCs are funding decentralized-focus companies because of expanding use-cases, as well as optimistic forecasts. Blockchain will create new business value worth $3.1 trillion by 2030, according to Gartner.
2. Lowers risk of systemic failure
Nowhere is trust more crucial than in monetary systems.
Decentralization has given rise to digital currencies because of its ability to gain user confidence. Systemic failure occurs in hyperinflationary economies such as Zimbabwe and Venezuela.
"That's one reason why digital exchange platforms are spreading worldwide," says Todd Crosland, founder and CEO of CoinZoom, a next-gen cryptocurrency exchange. "In our case, CoinZoom is providing what we believe is the first step toward mass adoption for Digital assets, through our CoinZoom Visa debit card, that allows customers to spend their bitcoin, ethereum, or other digital assets easily throughout the world."
Cryptocurrencies' rise in value also reflects people's skepticism of central banks and government planners' motives, ethics, or competence. And their underlying protocol, decentralization, is an antidote to too-big-to-fail. Single points of failure can bring down an economic system, such as a Wall Street bank that needs a massive bailout, lest it crash a financial system.
In technology, single points of failure can halt a network, such as when a website or ATM software crashes. In decentralized systems, a node that goes offline passes their workload to other nodes, which means applications can remain up and running.
3. Censorship resistance fosters an open culture
Central entities or malicious actors can shut down legitimate concerns about proposals or practices that, if implemented, can improve an organization and/or prevent bad behavior. Peer-to-peer communication is much harder to censor: It fosters an environment that allows for meritocracy and constructive feedback.
"A big reason why we work with blockchain companies is the positive and open culture," says Poseidon Ho. "Traditional corporate culture can be rife with politics and dysfunction. In many decentralized-focused ventures, management and employees embrace the effort to create a better user experience, and to design protocols that nurture an ecosystem."
Moreover, decentralized networks tend to be open-source projects, which means anyone can build apps, products, and services on top of them. That expands opportunities for network growth. Under closed systems, developers are limited to what a central organization dictates what can be built or developed.
Decentralization isn't solely a technological approach. It's a mindset and culture that doesn't seek one's way, but rather seeks the best way for an entire ecosystem.