Unlocking the Block to Decentralization (Discontinued 1/2)

 “Unlocking the Block to Decentralization” will consists of two parts: 

  1. The first part discusses the basic “Ws” and significance of Blockchain technology.
  2. The second part frames Blockchain technology within more particular tangible use cases and “the future.” Due to its complexity, it will divided into two parts.

Recently, the wild rise in popularity of Bitcoin and other cryptocurrencies has stunned investors and has spurred the interest of millions. I believe the cultural reaction to Bitcoin is best summarized by

On one side of the aisle of Cryptocurrency you have individuals salivating over the aura of being overnight millionaires—the type of people who place bets, not investments on penny stock. On the other side of the aisle, you have individuals who are intense skeptics, frightened by the creepy, hacky vibe of “crypto” and the salivating, pyramid schemers who will use Cryptocurrency as a method for getting the “Lambo” to avoid “FOMO.”

Then there is the middle. Those, who I believe, can partly detach from craze and analytically position the significance and hype of Cryptocurrencies for their technology: Blockchain and its relevance to Decentralization.

____

Part 1:

Most of what I have to say for the first part will be built on Chris Dixon’s

Why Decentralization Matters 

During the first era of the internet — from the 1980s through the early 2000s — internet services were built on open protocols that were controlled by the internet community. This meant that people or organizations could grow their internet presence knowing the rules of the game wouldn’t change later on. Huge web properties were started during this era including Yahoo, Google, Amazon, Facebook, LinkedIn, and YouTube. In the process, the importance of centralized platforms like AOL greatly diminished.

During the second era of the internet, from the mid 2000s to the present, for-profit tech companies — most notably Google, Apple, Facebook, and Amazon (GAFA) — built software and services that rapidly outpaced the capabilities of open protocols. The explosive growth of smartphones accelerated this trend as mobile apps became the majority of internet use. Eventually users migrated from open services to these more sophisticated, centralized services. Even when users still accessed open protocols like the web, they would typically do so mediated by GAFA software and services.

The good news is that billions of people got access to amazing technologies, many of which were free to use. The bad news is that it became much harder for startups, creators, and other groups to grow their internet presence without worrying about centralized platforms changing the rules on them, taking away their audiences and profits.

Understanding the history of the internet, especially in relevance to decentralization is significant, because it pushes you to thinking correctly that blockchain as the potential to be the next evolution of the internet.

The rise of computers in the 1950s brought the subsequent development of the earliest prototypes of the Internet a decade later with the intention for communication—funded by the Department of Defense. Furthering what is noted in the quote, decentralized protocols—for those unfamiliar, open protocols allow interoperability without the need for a proprietary interface or gateway with no translation required, while closed protocols are proprietary and not open to communication without an interface or gateway, requiring SNA (Systems Network Architecture) —that led ironically led to the genesis of the Centralized Internet, or Web 2.0.

graph.png

Specifically, a decentralized system—in fact, the Internet was designed to be decentralized—was key to mass adoption of the Internet. Developments which includes TCP/IP (Transmission Control Protocol/ Internet Protocol), which enabled a common language that united e-mail, file sharing, web pages, World Wide Web and HTML, which created the standard for internet addresses with domain names; Browser, which created the early software programs, from Mosaic in 1993 from Gopher, to provide access to websites; Search Engines, which enabled navigation around information and content form the Internet; and ISP (Internet Service Providers), which advanced faster data speeds from slow modems.

One response to this centralization is to impose government regulation on large internet companies. This response assumes that the internet is similar to past communication networks like the phone, radio, and TV networks. But the hardware-based networks of the past are fundamentally different than the internet, a software-based network. Once hardware-based networks are built, they are nearly impossible to rearchitect. Software-based networks can be rearchitected through entrepreneurial innovation and market forces.

The internet is the ultimate software-based network, consisting of a relatively simple core layer connecting billions of fully programmable computers at the edge. Software is simply the encoding of human thought, and as such has an almost unbounded design space. Computers connected to the internet are, by and large, free to run whatever software their owners choose. Whatever can be dreamt up, with the right set of incentives, can quickly propagate across the internet. Internet architecture is where technical creativity and incentive design intersect.

Most governments fundamentally misunderstand the internet—at the time of this publication, the questions asked to Mark Zuckerberg is immediate validation of such claim—and its probably true that they will misunderstand the internet as a software-based network from other hardware-based networks; regardless, overregulation, like centralized systems, will stifle innovation and be the enemy of progress.

Here I will present why centralized systems are bad, and defend decentralized systems.

Centralized platforms follow a predictable life cycle. When they start out, they do everything they can to recruit users and 3rd-party complements like developers, businesses, and media organizations. They do this to make their services more valuable, as platforms (by definition) are systems with multi-sided network effects. As platforms move up the adoption S-curve, their power over users and 3rd parties steadily grows.

The top of the S-Curve is known as Zero-sum—the positive growth in relationships, and access with the internet, is no longer with the status quote. It is very much a bait-and-switch too for entprenerenurs, developers and investors—and monopolies are enemies to the innovation of software-related technologies.

Decentralization benefits can be described as followed:

First, users don’t have to trust a central authority since the intermediary in any exchange economy is eliminated. Second, the system itself will not fail from a single point—a decentralized system offers options and in a system of networks, there is not one node, but rather multiple ones. Third, the more ethical issue of democracy and censorship is abundantly clear—any basic history lecture on what dictatorships are and suppressions that follow show the societal and political implications at a level of capitalism, but also social welfare. Fourth, decentralized systems have the potential to promote open platforms where anyone can build products and services; this is empirically proven again by how GAFA destroyed AOL and Prodigy, which typified two centralized systems. Finally, a decentralized system can encourage network alignment in that developers can receive stake—so they have incentives to expand the network and to appreciate the value of the exchange.

Meritocracy is relevant here; centralized systems choke flow and proliferation of the best product,tool,service, or company.

So what is Blockchain?

The assumed principle is that the internet is boiled down to the constant flow of information—everything created, in history or today, requires information, producing a actionability and direct influence.

Blockchain is a new way of storing and moving data, where information can become atomized and spread across networks, with thousands of various nodes, bound by cryptography; in application or theoretical understanding, at its core Blockchain is a technology that has the advantages above as decentralized system.

Image result for how block chain works

Use cases of Blockchain are discussed later on, and it’s important to perpetually emphasize Blockchain and Cryptonetworks are not only Cryptocurrency. However, given the inherent transactional nature of economics within Cryptocurrency, data and action operates in most Blockchains operate similarly…

Image result for how cryptocurrency work

Decentralized networks aren’t the end-all be-all solution; it is worth noting that for the first part I will describe Blockchain and Cryptonetworks with a language that emphasizes potential. Current practices need refinement; this will be discussed later.

Furthermore, decentralized networks take more time to develop and interact with, can be expensive, and not practical: mainstream users care about the execution of a task, and some products built upon centralization are clearly better, ride-sharing services are an example.

Early internet protocols were technical specifications created by working groups or non-profit organizations that relied on the alignment of interests in the internet community to gain adoption. This method worked well during the very early stages of the internet but since the early 1990s very few new protocols have gained widespread adoption. Cryptonetworks fix these problems by providing economics incentives to developers, maintainers, and other network participants in the form of tokens. They are also much more technically robust. For example, they are able to keep state and do arbitrary transformations on that state, something past protocols could never do.

Cryptonetworks use multiple mechanisms to ensure that they stay neutral as they grow, preventing the bait-and-switch of centralized platforms. First, the contract between cryptonetworks and their participants is enforced in open source code. Second, they are kept in check through mechanisms for “voice” and “exit.” Participants are given voice through community governance, both “on chain” (via the protocol) and “off chain” (via the social structures around the protocol). Participants can exit either by leaving the network and selling their coins, or in the extreme case by forking the protocol.

In short, cryptonetworks align network participants to work together toward a common goal — the growth of the network and the appreciation of the token. This alignment is one of the main reasons Bitcoin continues to defy skeptics and flourish, even while new cryptonetworks like Ethereum have grown alongside it.

But again, when discussing internet in a discourse that emphasizes evolution and growth, Cryptonetworks and Blockhain are inevitable as of yet. From the quote above,  it is important to emphasize that Cryptonetworks have similar elements to processes that created the Internet, but on a more technically robust platform that also include mechanisms like open source code, “on chain” and “off chain” norms, and forking protocols—all which encourage growth of the network and appreciation of the token.

Image result for crypto networks game theory

These processes will be described further when discussing Crypto-networks now, investment opportunities with it, and how it in general can fit into the future.

Here are three takeaways:

  1. The Internet was built with decentralized protocols that ironically brought about centralized system—which enable distribution, but can be attributed to the problems of democracy and security present now and the zero-sum with respect to growth.
  2. Blockchain is an evolutionary phase of the internet that has the potential to address the problems facing the internet world since its key quality—which features validation, structure, and network—possess uniquely decentralized qualities.
  3. Cryptonetworks share similar attributes to the first stage of the Internet, with the TCP/IP, World Wide Web and HTML, but add a strong technical infrastructure which features a powerful network alignment. 

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