Understanding Decentralization

Decentralization as a whole has definitely been one of the stars this 2017. Something that had remained in the shadow for many over the past decade is now more popular than VR, thanks to its rockstar growth over the past year.
Decentralization is the process of distributing or dispersing functions, powers, people or things away from a central location or authority.

We could argue that the world is progressively evolving into a more distributed place, where there are less single points of control. We are seeing this with the success of services such as Airbnb or Uber, which move the power from the few and give it to the people. But decentralization is now going much further than just that, mainly thanks to the different applications blockchain technology is giving birth to.

To understand decentralization, we first need to understand the technology that made it boom. That is, blockchain technology. A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data.The first work on a cryptographically secured chain of blocks was described in 1991 by Stuart Haber and W. Scott Stornetta. The first distributed blockchain was then conceptualised by an anonymous person or group known as Satoshi Nakamoto in 2008 and implemented the following year as a core component of the digital currency Bitcoin, where it serves as the public ledget for all transactions. The fact that the different blockchain applications that do actually make sense are still at an incredibly early stage make it obvious that blockchain still has a long way to go. Although I admit so, it also needs to be understood that decentralization is probably reaching its hype peak, just like Virtual Reality did a couple years back. Decentralization and Blockchain are being pumped by an endless amount of services that don’t make much sense and which long-term applications are questionable. For that reason, I believe that this decentralization as a whole will mature in the coming months, and become something solid and relevant in the coming years, similarly to what happened with VR.

One of the decentralized innovations blockchain gave birth to were cryptocurrencies, being Bitcoin the first of these. I believe that decentralized digital currencies will make it into mass-market adoption, as they are a more efficient way of transacting than doing so with fiat. Cryptocurrencies such as Bitcoin Cash or Dash will probably make it way bigger than what they are right now, as they mature and so do the frameworks around them. Governments (which are also becoming incresingly global) need to find effective ways to tax purchases made with cryptos, and services which provide serious refund policies and guarantees when transacting with cryptos also need to be developed. But I’m pretty sure that in the coming years we’ll have a couple truly global and massively adopted decentralized currencies. I’m not so sure about the rest of the cryptocurrencies though. There are over 1,300 different cryptocurrencies as of today, and each these is serving a different purpose. This situation was mainly fault of what’s known as Initial Coin Offerings (ICOs), something that I think won’t be too big once all these matures. ICOs are non-equity fundraising rounds for startups, in which the startup trades money in exchange for their own cryptocurrency. This dedicated cryptocurrency is usually intended to be used only inside the ecosystem of the company from which the user purchased the crypto from. The thing is that this goes against the whole point of globalization. The fact of having to use a different crypto for each different company doesn’t make much sense. Right now there are so many successful ICOs mainly because the industry is at its hype peak, but I do think that all these ICO mayhem will slow down significantly, and most of the currently trading cryptos will fail due to lack of true meaning (both, of the cryptos and in many occasions of the projects themselves). You do have some cryptos apart from those which aim to be the next big currency (eg Dash) that will succeed, but these will probably be tied either to extremely successful companies with a huge demand, or represent much more than just a currency (eg ownership of a house via a smartcontract).

So, all in all, I believe that decentralization will be one of the few trends that will shape our future, but I also believe that its overall hype will slow down, and that only a very small % of what we’re currently seeing in the industry will succeed and make it big in the long run.