Why Decentralisation matters

The rise of Bitcoin and Distributed Ledger Technology has in the last decade spawned a lexicon of buzzwords and jargon that remains incomprehensible to the average person on the street. One of the most widely used and misunderstood phrases is Decentralisation when used in combination with permissionless public networks like Bitcoin, Ethereum or Radix. Why do people care so much about decentralisation?

One key reason why decentralisation matters is because of what these networks are trying to achieve. Decentralised networks are working to create a new global digital commons for the wealth of the world. This commons is designed to connect people to create an interconnected web of addresses where the ownership of anything can be sent, stored and programmed.

Like IP addresses on the internet; a crypto address is the passport to this new digital realm of ownership. It gives every user the right to a safe place to store their wealth and the power of instant value exchange. It changes money, identity, and property from something analogue to something truly digital. Current emphasis has focused on the potential to connect and serve the 2.5 billion unbanked people in the world, although that is undoubtedly a worthwhile goal, decentralisation’s importance goes beyond mere utility. Decentralisation is a philosophy that underpins a fundamental desire to build a robust, self-sustaining, self-perpetuating system. One that the world can rely on and trust, free from meddling Central Bankers and politicians.

Why does decentralisation of a protocol matter?

The desire for decentralisation springs from a fundamental desire for a robust, interconnected and frictionless system for exchanging value and information. For some this is about a distrust of authority, for others, it is about creating better systems for storing human wealth. If an object is publicly owned, we generally have fewer concerns about it being able to be taken away. Like any fundamentally important infrastructure, if we have to rely on it, we ideally want it to be resilient and self-repairing.

Crypto wallet owners are engaged by the assets that they can own once they have a wallet. An asset can be anything from a simple token, that can provide access to a decentralised application. A public ledger is a two-sided marketplace made up of asset creators and asset holders. Anyone with a crypto wallet can be an asset holder. Anyone who wishes to reach the audience of crypto wallet owners can become an asset creator. The asset consumers attract the asset creators, and vice versa.

Early adopters want to see a public, decentralised ledger that can deliver on their vision of a fully tokenized, tradeable and digitally owned infrastructure that enables anyone to become a stakeholder. Believers in decentralisation see a future dominated not by corporates but by communities building and developing services, recognising ownership of tokens on a distributed ledger that is interoperable and open to anyone.

He who has a why to live can bear almost any how.” – Nietzsche

An Engaged Community of Believers

For a distributed ledger to grow and develop a strong community of users, it needs to have an ideological underpinning and strong sense of purpose that the products and capabilities on offer will change the way people interact and work in the future.

As a network grows in size and moves from being an ideologically experiment to something more serious, businesses and individuals will start to make more economically grounded decisions. The cost now becomes a huge component in the choice to use a network. This is where the normal maxim of “build a product your customers love and charge as much for it as you can” is turned on its head. In order to achieve network dominance, you need to remove any possible barrier that may turn the choice away from your network.

This is an important consideration in how you build your economics and incentive structures. A network is either user paid or balance holder paid. This means that either the fees charged in a transaction cover the actual cost of processing a transaction (currently true of NO current public ledger), or there is an emission of new tokens (e.g. bitcoin block rewards) that increases the circulating supply of tokens, reducing the value of token balance holders holdings, but making up the additional cost of running a node.

Trust in financial systems and infrastructure was severely dented by the financial crash of 2007/08 and Bitcoin’s launch in 2009 was in part a response in how the exchange of value and trust in the financial system could be reconceptualised. Decentralised networks not only have the potential to provide financial access to billions of unbanked people, but they also offer an alternative vision and philosophy for how people interact with each other in the financial ecosystem. The established role of governments, financial institutions, economists, nation-states and elites for creating the environment in which people interact economically is no longer taken for granted in the same way previous generations did.

Permissionless decentralisation provides a real alternative to the current closed systems that is open to anyone with access to the internet and a mobile phone, enabling the next generation to decide how those systems emerge and what they look like. Only time will tell how decentralisation will shape our future, but one thing’s for sure, it’s here to stay.  

Piers Ridyard, CEO, Radix

Featured in this Article:

Piers Ridyard Radix

Author: Eleanor Hazelton