The blockchain entrepreneur I recently talked with over the phone was excited, speaking energetically about what set his product apart from the rest and boasting how company culture was perfectly aligned with the essence of what crypto is about.
“Our company is totally decentralized — each of us are based in a different location and we believe in community driven decisions,” he declared.
This sentence got me thinking: I’ve heard it many times before. Crypto entrepreneurs often try to outdo each other by how decentralized their company is. But what does ‘decentralization’ really mean and is it in and of itself a goal crypto is heading towards?
Try replacing the word ‘decentralized’ with ‘efficient’ or ‘successful’ in a sentence — it almost always works. The more decentralized your company is, the better, is the common narrative in the industry.
This often goes well beyond the product or the protocol itself. Decentralized teams and governance are viewed as ideal. A community that makes decisions as a collective? Great. Working remotely from different places around the globe? Power to you. No organizational structure? This is blockchain stupid, no need for a formal CEO.
It’s time to bust the myth: centralization in certain non-product or technical aspects of building a successful multi-billion dollar company is required. This applies to crypto too.
There, I said it.
I’m sorry if members of the crypto community find this offensive.
The problem with decentralization in crypto is that it has become the be all and end all. The mere word ‘centralized’ or suggesting that a central entity has any control on any aspect of a company’s operations is immediately viewed negatively.
It’s time to call the bluff.
There are two main problems with the current decentralization mania. First, there is no such thing as 100% decentralized. Arguably even the most decentralized projects in crypto have aspects that are quite centralized, whether through governance or mining pools that are highly concentrated in one geographic location and could trigger a 51% attack in case of collusion.
Second, even if 100% decentralization was a real possibility, not everything in crypto should be decentralized.
We need to distinguish between the product and the non-technical aspects of running a company, including the ongoing team operations and goals. This hybrid model, which I like to refer to as the ‘Spider Web’ thesis will help teams move faster and scale more efficiently.
Similar to a spider’s web, under this model crypto teams need to constantly increase the reach and complexity of the decentralized product they are building. As the web evolves and grows in size, they can gain scale and improve their chances of survival.
At the product or protocol level, decentralization, if designed and architected correctly, helps build trust among users, ensures fairer incentive distribution and makes it possible to validate transactions independently. Further, decentralization can lead to positive outcomes like increased hashrate and enhanced protocol security. These are all crucial aspects of blockchain and distributed software architecture.
At the same time, there’s a need for clear leadership. The leader(s) fills the role of the spider, coordinating efforts and guiding the way to ensure the project is moving in the right direction and keeps growing.
Decentralization at the product level shouldn’t be confused with the company’s daily operations or goals. Customers don’t go to sleep at night thinking whether a certain company is decentralized enough. What they really want is to use a secure, censorship-resistant and immutable protocol with a system that includes low fees, high throughput and fast settlements.
The exact goals and emphasis can vary based on the use cases the product/protocol is solving for (e.g. some may want a certain level of transparency or privacy) but these are examples of goals as they represent the ultimate needs of users.
When building a product and managing the day to day operations of a team (whether working out of one or multiple offices), sitting at a desk next to your teammates is better than geographic decentralization. You can spontaneously chat about ongoing issues that arise and make decisions quickly and effectively.
For instance, when I was building products at Facebook we liked to do a daily stand-up team meeting to identify any bottlenecks that emerge and ensure product development continues apace.
Some of the best ideas I came up with stemmed from casual, unplanned hallway conversations I had with a designer, researcher or engineer on my team. On numerous occasions while bumping into a sales person during lunch break I learned about new issues clients were having with our products that needed to be addressed.
Yes, I’ve heard of video conferencing. At Facebook we had some of the most advanced equipment, yet it was never quite the same as being in the same room. That’s why we often flew to other offices to spend time in person with teams we were working with to discuss customer feedback and brainstorm product ideas.
During my time at Stanford, the basic premise was the same. The university kept pushing for more and more on-campus housing to encourage students to live in close proximity, recognizing that casual discussions foster innovation.
From an organizational perspective, having a robust and clear leadership structure in place is a good thing, not something to shy away from. Take for example the sluggish, ongoing debate that ultimately led to the Bitcoin Cash fork. Using a different decision-making process this could have been avoided.
Another example is that of Ethereum. One of the main reasons for its thriving ERC-20 token ecosystem and great progress in recent years is due to having clear leadership and an efficient process to make decisions, combined with decentralization at the protocol level. The ‘spider web’ model in full force.
To be clear, that’s not to say the community or employees shouldn’t have a say in how a company is managed. They absolutely should. But a formal and agreed upon leadership helps streamline a more efficient decision-making process among people who spend every working hour thinking through solutions to improve the product and push user adoption.
To conclude, I’m convinced distributed ledger technology is a revolution that will change the world for the better. Like others before it, adherents of this breakthrough technology are deeply passionate about the cause — sometimes to a fault.
The best way to promote the message of crypto is by not confusing cause and effect: decentralization as a means, rather than an all-encompassing goal.
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