Towards a decentralized future

It’s obvious isn’t it? That we’re heading towards a decentralized future?

It might be that it’s just obvious to me, since I’m so deeply involved in this, but the signs are everywhere. From Meta and Twitter collapsing, to oil being replaced by renewables. This shift is aligning us for a new mega trend, one which has been underway in many areas for many years, but now, with improvements in technology, finally enable us to take it all the way.

Many are fighting this. They have vested interests in keeping the old going, and are using all the tools at their disposal to try to stop or slow this shift.

Disruptive technologies typically enable new markets to emerge.

Clayton M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail

One of the observations I have from many that are skeptical towards such a shift claims they could see the potential, but they are waiting for some revolution to happen before they believe it is possible. “We need a revolution in battery technology first..” is a typical one, before they believe electric cars could take over. But reality is, both there and elsewhere, that it’s the gradual improvements in any new technology that eventually allows it to outcompete the establishment. While the shift might feel revolutionary at or just after that point, it isn’t a surprise to anyone who paid attention. It’s predictable.

One of my favorite books, “The Innovator’s Dilemma” by Clayton M. Christensen exemplifies this with hard drives. This is a technology that tend to iterate quickly, making it a prime example to study as we can observe the change in a relatively short time span. From big expensive ultra reliable single drives for big mainframe systems, to smaller, less reliable, but ultimately cheaper and more competitive drives targeting a different segment, to then again non-mechanical drives known as SSDs. The story keeps on playing out, repeating itself. Each time, the market adapts, finds that the new tech isn’t exactly the same, but, with a few changes in its application, outperforms the old.

E-mail, a standard established back in the early 1980s as the “Simple Mail Transfer Protocol”, is perhaps the best example of a decentralized system. We still use it today, in fact, we couldn’t live without it. And, of course, let’s not forget the Internet itself, on which e-mail runs!

But e-mail is also a good example of how this mega trend isn’t always clear. It’s not easy today to run your own e-mail server. The big e-mail providers out there, like Google, Microsoft and others, would likely block e-mails sent from your own private server, classifying it as spam. On one side, we can argue this is their way of dealing with spam, as it is often sent from such servers. Alternatively, we could argue this is a short term reversal, going against the mega trend. Its their way of fighting decentralization, creating a walled garden.

One reason why spam is hard to fight is that we don’t have a good way to establish trust online. I can’t easily identify myself online, without relying on some third-party. And if I were to identify myself online, with traditional approaches I would usually need to give up lots of personal data in return. Examples of this come in the form of Facebook, where a social graph can help establish trust, but at the cost of giving up a lot of information to a centralized entity.

Counterexamples to this is decentralized identity, which, as W3C standards (see VC and DID), finally have a chance at allowing us to prove who we are, while keeping us in control. This allows me to send you a message, signed with my identity, giving you some certainty about who I am; it allows your digital agent to easily intercept obvious spam. You’re not bothered with obvious spam, because the system can determine with accuracy that this message was not sent by a genuine human. And for annoying messages sent by genuine humans, you can easily block them, since they are signed messages.

Another part of this trend is of course blockchains. While for many, blockchains are purely associated with scams and ponzis, but we need to here separate the tech from the abuse of it. Just like e-mails got a spam problem, blockchains got a scam problem. But the technology enables a digital variant of real-world property known as scarcity. I would like to e-mail you some money. Without scarcity, that’s not possible, but blockchains enable digital scarcity. I can now send you dollars, euros, or whatever else, be that cryptocurrencies or digital goods, just as easily as I can send an attachment in an e-mail.

I used to be able to buy CDs and sell them later, recouping some of my costs. Sure, I can still do that, there are shops near where I live that allow me to still do so. But I’ve been a paying Spotify customer for well over 10 years. And while I get great pleasure from being a paying Spotify customer, I have nothing to show for it. It’s like I’m renting a flat. It’s nice, I enjoy it, but if the landlord were to increase the rent past what I would like to pay, that would be it. It would just be a memory thereafter. Had I bought CDs and I didn’t want them anymore, I could sell them, or simply pack them away.

I’m of course not arguing that we should go back to CDs. While there is some nostalgia, it’s dated technology. Better technologies exist, and if I could buy some music in digital form, and have ownership of it like I have with a CD, it would give me the same freedoms to pass these on. Again, digital scarcity enables this.

Sometimes, especially in business, relationships are more complex than just two parties buying and selling digital equivalent CDs between themselves. It requires multiple parties to coordinate and manage a complex flow of interactions. At any significant scale, it simply doesn’t work to have this be uncoordinated. We then make use of brokers and other such intermediaries. They act as a central trusted actor that everyone can relate to. It doesn’t always work out, because sometimes we can’t agree on who this trusted actor should be. This is where smart contracts step in. They act as the intermediary, arranging and organizing the steps needed for this complex process to play out. But, the difference is that, a correctly designed smart contract removes the need for trust in a centralized intermediary. Instead it’s a decentralized intermediary with guarantees around how it would operate. There is no uncertainty about the outcome of the process, it’s predetermined.

“But,” I hear you interrupt, “what about this or that blockchain rug pull!?” This is a countertrend again, one in which we don’t always use the technology as intended. I could create a smart contract, where I’m the administrator, allowing me to change the process half way through. That’s a third-party risk, which isn’t a necessity when using smart contracts, but still, is something I could code into it. Like with anything complex, we then need to learn how to evaluate these risk factors, to avoid or minimize what we don’t want exposure to.

This brings me to intermediaries more broadly. I don’t think most people can or want to run their own e-mail server. I don’t think most people can or want to be their own bank. I don’t think most people can or want to manage most of these types of complexities, and neither should they be forced to. They should be allowed to if they want to, but there should be a broad and thriving market for service providers. These are companies that specialize in removing all the things that aren’t core to you enjoying music, to you sending money online, or to you being able to run a global business without deep protocol level insights and knowledge. But these intermediaries can’t be allowed to lock you in. You must be in control, and you must be allowed to move your activities away from them without that resulting in starting from scratch. That’s what open protocols, decentralization and being in control is all about. It gives you choice. You of course need to sign the T&Cs of any service provider, but should they get too bothersome, there’s a queue of willing alternatives to pick from. Switching over shouldn’t involve more than a few clicks.

Finally, let’s mention probably the biggest intermediary of them all, the US dollar. The world is addicted to energy, and most of this energy still comes from oil and related products. And oil is, as we know, priced and traded in USD. But the trend is, if not noisy, heading away from oil. Peak oil is upon us, which means that energy no longer need to come from a few lucky producers, but instead is readily available locally. If my neighborhood can mostly produce its own energy, topping it up every now and again with some wind energy just a bit further away, I’m not going to refuel my car with a commodity priced in USD. I’m going to pay for this in whatever local currency we happen to use. This is again a choice, something that depends on the kingdom I’ve selected to be part of. And should the current kingdom become too cumbersome due to political mismanagement, I have a choice elsewhere. I can selectively pick the best of what’s offered, according to my preference, and arrange it and change it as I see fit, without negatively impacting my relationship with others and their own chooses. Some would describe this as barter 2.0, but it doesn’t matter what you call it, as it is frictionless and automated.

Would that imply the impending death of the dollar as world reserve currency? Unlikely, but in a truly decentralized system it also would imply that whatever currency you prefer is down to you. Your choice doesn’t need to coincide with my choice, but in the interest of minimizing volatility we’d likely converge on a few of them. Not one, but a few, with a long tail of less popular but equally well integrated options. Maybe I prefer a basked, and want my salary paid in those? My employer wouldn’t care, or even know, as its all managed through a protocol. Perhaps instead its a counterparty risk minimized variant of the dollar, such as LUSD?

In an even bigger context perhaps you could argue this could fit into deglobalization, as each nation-state becomes less dependent on others. Being self sufficient on energy could again allow for increased production of locally sourced food, using concepts like vertical farming. New and improved production technology and logistics can use this self sufficiency to shift production back home. But, deglobalization has historically been tied with increased barriers and reduced growth.

Instead I’d say decentralization would enable a more diversified globalized landscape, with greater certainty around protocols and process, and hence with less risk concentration.

It’s a future I welcome and is eager to participate in, as I see lots of opportunity for all.