Decentralization is a term that has been bandied out with reckless abandon, to the point where many are asking, “is [insert your favorite blockchain] decentralized?” as if the answer is binary. One look at the crypto ecosystem and you’ll notice the religious-level zeal that is applied toward debating decentralization, as well as attacks claiming nothing in blockchain is decentralized.
From an investor and builder’s point of view, however, this is generally the wrong framework. Viewing decentralization as a binary outcome misses the forest for the trees. In a world where decentralization brings censorship resistance but lacks scalability, one must view this characteristic as a sliding scale. This is the way I suggest to look at it: Is the blockchain in question decentralized enough for the use cases it is optimizing for?
Below are the three main buckets where popular blockchains operate along with use cases that make the most sense.
1) Sovereign-Grade Censorship Resistance
Working Definition: Chains that have at least 3 years of track record and at least 3 entities in control of >50% of voting/mining power.
Use Cases Overview: Any activity conducted under oppressive regimes where trust and liberty is essentially non-existent
These blockchains are decentralized and secure, but are not scalable (at least not yet). Appropriate use cases are those which either consistently run a high risk of censorship or those where an instance of censorship would be very costly for users.
2) Platform-Grade Censorship Resistance
Working Definition: Chains with less than three years of track record that are more centralized as measured by token distribution and/or requirements to participate in consensus
Use Case Overview: Activities where government censorship is not likely. Rather, the value of decentralization comes from permissionless application development.
There are a host of next-generation blockchains experimenting with variations of consensus to allow for greater scalability while maintaining a certain level of censorship resistance. However, these are still relatively nascent and are not as battle tested nor as decentralized as bucket #1.
3) Low-Grade Censorship Resistance
Working Definition: Platforms that optimize for scalability by centralizing aspects such as strict controls on who can participate in consensus and/or patenting the protocol to avoid forks
Use Cases Overview: Similar to those of Platform-Grade Censorship Resistance
The last bucket encompasses blockchains and other Distributed Ledger Technologies that prioritize scalability above all with the argument that their protocols are “decentralized enough” to be more attractive than a centralized platform.
What Does the Future Hold?
To date, no protocol has been able to solve the scalability trilemma, which involves the tradeoffs mentioned above. However, blockchains are not stagnant and there are tons of incredibly talented developers working on scalability solutions which may yield protocols that provide the best of all worlds (scalability, security, and decentralization). Below are a subset of high-profile projects set to launch next year that claim to be able to solve the limitations of today’s protocols.
With all the experimentation taking place, it is very likely that the landscape will look substantially different a year from now. Until then, I urge builders not to decentralize just for decentralization’s sake. Above all, keep the pursuit of product-market fit as priority #1 and the correct level of decentralization necessary will become more apparent.