The Trilemma of Decentralization: Infrastructure, Control, and Necessity

The problem of Decentralization — 1

At the core of a successfully decentralized platform (“D-platform”) is a broad and deep enough distribution of a network of participants in order to prevent take-over or manipulation of the platform. This problem is referred to as PBFT, Practical Byzantine Fault Tolerance. For any D-platform, as well, this feature must be guaranteed to exist in perpetuity.

The first and best example of an attempt to solve this problem is Bitcoin. The original utopianist view was that a worldwide group of unassociated people would run the infrastructure at their own expense and be financially rewarded for doing so. The project, as the pseudonymous Satoshi Nakamoto originally described, has wholly failed. Bitcoin (and other “Proof-of-Work” applications) is now fully vulnerable to PBFT failure.

The effective control of Bitcoin is nearly completely centralized and the control extends from block validation/hash issuance to design of mining hardware up through control of massive warehouses of mining rigs, and to location. This is China, Inc. (For details, see my further writing on this subject)

Nevertheless, “decentralization” has been trying to move on, partly to solve the concentration of control problem and partly to solve practical matters such as scalability and throughput for transactions. For at least the last 4 years there has been universal (if not universally acknowledged) agreement that PoW and even PoS (Proof-of-Stake) have failed as means of achieving decentralization. This has taken place even at the same time more and more people have become aware of and believers in crypto and decentralization, which rely entirely on these approaches.

Individual schemes to solve these problems have proliferated at an enormous pace and even whole new categories and variants of approach are also proliferating: PoW, PoS, PoR, PoA, DPoS, PoET, SMR, BEAT, etc. The number of projects can likely now be counted in the thousands. No single technology “challenge” in history has generated such a large number of attempts at a “problem’s” solution and been the object of so much investment (of dollars and talent) and still lacks a single significant application/success in any area of human activity.

One has to assume that there are large numbers of people who believe that at some point quantity of effort and money will result in quality and miraculously a solution will emerge. At this point, realistically, it is certain that nothing will emerge to solve this problem. If there is no mechanism to assure permanent randomization and distribution of transaction validation, control of the platform will always rest largely, if not entirely in some group.

In other words, the problem itself is not primarily a technical one, it is a problem that is both deeply technical and deeply human-dependent together.

The problem of Decentralization — 2

It’s the infrastructure, stupid. Although logically this should appear as problem 1, it seems never to occur first to many proponents of Decentralization. But it seems easier to bring it up once the owner/participant/proponent of the project has had a chance to pitch it.

But the issue of infrastructure does indeed belong at the beginning since it is the core absurdity of so many Decentralist beliefs. To wit: Any modern digital platform of any kind is inseparable from infrastructure and hence whoever controls all or most of that infrastructure. Yes, it sounds like “yeah, of course”. But I cannot count the number of times very smart people have entirely ignored this when explaining passionately the objective of circumventing the control by Nation States, Governments, Regulatory oversight, etc.

Just yesterday, for the 100th+ time, I was being told by a seriously well-funded and very smart founder with a “whole new” decentralized platform design how it was going to be used, for example, in Africa: It would be used to solve the problem of land registration ownership, birth certificate issuance, house/land purchases, crop/drug/diamond/oil/etc. authenticity. Blockchain would enable and secure these and circumvent the corruption in the government. I asked him who controlled the infrastructure (electricity, ISPs, cloud, telecom, courts, etc.) that the platform and users needed. The “Duh” moment had arrived. We were on a Google Meet session and I thought it had frozen up, since there was no sound or movement for at least a minute while it sunk in. And then he had to go and speak to one of his investors.

The problem of infrastructure extends also to the “value exchange” infrastructure, currency, or barter. For a person using a decentralized platform to transact anything of value, the user base has to be so extensive that the purchase and sale of ordinary and any good has a counterparty using the same platform and willing to make the specific exchange. This then requires a critical mass of counterparties distributed across a range of commodities and goods. Nowhere is this even remotely in prospect. And if it were, then it would require the above prerequisite agreement on the part of those controlling infrastructure, i.e., the government.

The Problem of Decentralization — 3

Typically, conversations related to Decentralization end with the previous problem. I don’t want to sound arrogant or unsympathetic to religious believers, but this moment (if it gets that far) is very like when you point out some major flaw of fact and/or reason to a religious person that casts doubt. If I am so lucky to continue, I move on to what really hangs over the decentralization project in general: WHY is it needed? This is the realm of politics.

Core to most believers is in one way or another a belief (often held in the same way as a religious belief) that it is good and necessary to put any or all of the possible activities that could run on decentralized platforms beyond the reach of the government and/or corrupt corporate elite. In countries where corruption is endemic and/or a society's benefits are monopolized by a self-serving elite, the benefit of a trusted platform free of government/elites’ control might seem to be a good thing. But it is also almost always the case that the government and/or elites can and will deprive the presumed beneficiaries of the ability to circumvent the corrupt system or punish those who try. And worse: the government and the elites are the ones who can position themselves most easily to benefit the most.

In the case of crypto, for instance, it is precisely the corrupt government members and elites who are the prime beneficiaries of “decentralization. In such countries, trading in resources and having access to hard currency is typically exclusive to them. And hence they benefit vastly more and the consequences are always worse for the country and people. See Venezuela. In open and reasonably well-functioning liberal democracies, the notion of Decentralization’s objective is contrary to sustaining the system.

Decentralization a priori undermines the belief in open democratic societies and calls into question the value of well-functioning, participatory, and responsible governance. The machine solves all problems. Decentralization also distracts and excuses by a priori assuming system failure. This can then undermine the regular project of elections, factual and free presses, and citizen activism as the real means to maintain a fair and open society.

In existing authoritarian and corrupt political systems without free and open democratic processes and systems, Decentralization can be easily taken away or monopolized by those in power. And this can create further distance to developing an open democratic polity. Decentralization is, if nothing else, a cure worse than the disease. The “decentralization” revolution is hopefully headed to the ash heap of history. It is time to redirect the vast amounts of money and talent somewhere else where more pressing problems for now and the future could use these resources.