Why Decentralization Matters

On the surface, many design goals of a blockchain-based decentralized platform could be achieved faster and cheaper using existing centralized platforms. For instance, the cost of storing data or executing computations on the Ethereum blockchain can be thousands to millions of times higher than performing the same functions on Amazon Web Services. Thus, decentralization allows developers to build applications on distributed platforms at a fraction of the cost compared to centralized ones, due to the inherent redundancy in processes and storage.

So why is paying the additional cost to support decentralization important? Not all data is the same. Certain value elements, such as digital currency ownership, personal identity, or asset ownership, are highly sensitive.

In a centralized system, the following actors can directly alter the value of any balance they access:

1. Developers who control the release or update of application code.

2. Platforms that store data.

3. Servers running the application code.

Even without intentional malicious actions, government authorities, law enforcement, and hackers can easily oppose users, censor, modify, or steal balances that should be protected. A typical user interacts with centralized applications for daily data and computations, which, despite potential vulnerabilities, are trusted to maintain the balance of the most sensitive information—wealth and identity. However, these entities are also susceptible to human arrogance, corruption, and theft.

In contrast, decentralized systems lack a "shut-off" switch and cannot be easily forced to comply with the will of any actor imposing their control on applications built on top of them. To achieve this, these systems require substantial redundancy in computation and data storage, as any fault point in these areas can be exploited. The more sensitive the stored information, the greater the need for redundancy and security, making decentralization increasingly crucial.

Blockchain-based systems form the foundation of this decentralization, as their variability, for instance, provides the necessary raw incentives to encourage cooperation and coordination among the digital actors that make up these systems and support their redundancy. Once these systems are launched, they essentially become "indelible." The benefits of building applications on such systems are immense. Highly sensitive information is globally secure and accessible, and these decentralized applications operate on infrastructures more complex than today's networks. They can access an instant and global pool of currency, value, and information, which centralized data storage cannot provide. Importantly, the data in these applications is securely owned and controlled by the end-users, not the applications themselves, opening up numerous new use cases that would be impossible without decentralized infrastructure.

While decentralization is crucial, not all blockchain-based systems are decentralized. Decentralization is a spectrum that can be measured along multiple dimensions, but fundamentally, it comes down to how many players need to be compromised to disrupt the system itself and how likely this is to occur. The more critical the asset the system must protect, the higher the level of decentralization required. True decentralization must be achieved, not just claimed.