Decentralization is for rule breaking.

One way of categorizing networks is by their “connectedness”. The easier it is to get from and to any node in the network, generally the more connected it is. This property is very good for analyzing a network’s structure. The more connected networks are, the better they are at handling sudden losses in connection to smaller parts within themselves.

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Another way for networks to withstand such losses is Decentralization.

Decentralization at the network level implies the lack of central control over connections or information flow. The more decentralized a network is, the more resilient it is against loss of connectivity.

This is achieved by increasing the connections each node has in the network. In fully decentralized networks, information is broadcasted freely so that any node on the network can listen to it.

The consequences of making networks more resilient via decentralization are that we add a lot more noise. If each node is listening to information from every other node, then there need to be clear rules about how to process duplicate information, how to order received information, and so on.

Network losses are not always passive connection issues. The same decentralization that makes networks resilient, also allows them to continue operating despite rule changes. That is, to a sufficiently decentralized network, there is no difference between a node dropping off because of a technical issue or a node not being allowed to communicate via a rule.

Enter Blockchain networks

Since Bitcoin launch, blockchain networks have been used to transact massive amounts of money (read value). They have also combined the resilience of decentralization with pseudo-anonymity to be one of the best ways to ignore rules about moving money around the world. So much so that blockchain networks appeal to their users, whichever user group they belong to, by pointing to decentralization as the main feature.

What this approach to marketing forgets, are the trade-offs that such decentralization brings. They usually use decentralized as a buzzword to signify better technology, cheaper transaction costs. They might also be putting you in the “decentralized everything” product flow, where you might be looking for a fintech 2.0 or trading product.

Some questions that you should ask anyone pitching decentralization as a feature

  • What current rule or cost structure is the decentralization resilient towards? (usually, the answer is onerous financial regulation)
  • Sure your blockchain network is decentralized, does it need to be if all transactions are fully allowed under current rules?
  • Do you care that two nodes who have nothing to do with your transactions must relay that to you?
  • Should you relay every action, however insignificant to the entire network?
  • Are the throughput trade-offs worth it for this particular type of action?

So if you hear someone pitch decentralization as their product’s core use-case, ask them which rules you can break via decentralization.

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