Why Is Decentralization Important?

Why Is Decentralization Important?

 

In a recent post we talked about how “decentralization is guiding the ship.” While the definition of the word can be guessed easily enough, the concept is nuanced and takes some time to understand the costs and benefits of decentralization.

Decentralization is a concept in politics, business, technology, and other fields. In a nutshell, it means a central authority doesn’t have control over a system, but control is distributed among the participants in the system. For example:

  • A centralized political system has a central authority with most (or all) of the power. In a decentralized political system the power rests closer to the individual or their representatives.
  • A centralized business structure has a central authority with most (or all) the power. In a decentralized business structure the power to make decisions is distributed between individuals and teams.

There are costs and benefits to these approaches in political and business settings.

The centralized approach allows for more rapid and decisive decision-making, as well as giving participants in the system a sense of clarity about the rules and their own role within it. It also sets up a structure to enforce those rules.

Unfortunately, this also highlights one of the primary drawbacks of centralized systems: what if the central authority acts in ways that are harmful to the participants in the system? There are innumerable examples of tyrannical governments abusing their power. There are also many examples of the leadership teams of companies making poor decisions and refusing to delegate power such that their decisions destroyed the company.

Decentralization avoids the abuse of power from central authorities. However, this comes at the cost of every participant taking on some responsibility themselves.

When we speak about OpenBazaar being decentralized, we are specifically referring to the architecture of the network itself. There is no central point of control in OpenBazaar, unlike Amazon or eBay. All participants in the network have equal power and can’t be forced by anyone else to do anything. This is radically different from the standard centralized model of ecommerce, and it has both costs and benefits.

Making trade free is the purpose of OpenBazaar. Decentralization is the method OpenBazaar uses to make trade free.

Beyond just being able to use cryptocurrencies easily, decentralization is what allows for all of the other benefits of the marketplace, such as:

  • There are no fees to use the platform
  • There is no central authority collecting data
  • There is no central authority able to take down a store or force a user to follow their terms and conditions
  • Users have total control of all of their trade

Centralized marketplaces can’t offer these guarantees because their revenue models require that they do things to impose on users in one or all of these areas.

  • If they didn’t charge fees, they’d need to monetize with user data
  • If they didn’t want to monetize user data, they’d need to charge fees
  • If they didn’t censor transactions and take down stores, they’d be forced to do so by governments (or be shut down themselves)

There’s really no possible way to run a permissionless marketplace unless it’s based on decentralized architecture.

On the internet, everything you see is based on files that “live” on a server somewhere. A server is just a name for another computer. Most servers are owned (or rented) by the central authority than runs the website you’re visiting, usually a company. When you use Amazon for shopping, you are connecting to Amazon’s servers, just like everyone else using Amazon. This is a centralized system.

Centralized computer to server diagram

Centralized computer to server network diagram

 

The decentralized system – like OpenBazaar – means computers aren’t connecting to a central location. They connect directly to each other. Basically, each user becomes their own server.

 

Decentralized computer to computer, or peer-to-peer, diagram

Decentralized computer to computer, or peer-to-peer, network diagram

 

This is one of the costs of using a decentralized system. Each participant in a decentralized system takes on some of the power that the centralized authority would normally have, which leads to the benefits mentioned above. It also means that they will have to take extra steps they wouldn’t need to take in a centralized system. In a decentralized political or business structure, this might mean people are forced to direct themselves instead of just taking orders. Their success or failure is then dependent on their own actions instead of the decisions of the central authority.

In a decentralized network, it means the participants need to be running the program themselves on their computer instead of relying on the central authority to do that for them. In OpenBazaar version 1.0, this meant users would need to run the software 24/7 in order to engage in trade with other people on the network. In the upcoming version 2.0, we have built on IPFS, allowing stores to go offline and still be available to other users if their store has been seeded. Even though this reduces the costs for users to access OpenBazaar, it’s still not as convenient as using the centralized ecommerce options.

Every user must weigh the costs and benefits of the different systems and determine which they prefer.

Centralized systems are abundant and widely used for ecommerce today. A usable decentralized ecommerce system didn’t exist until OpenBazaar, and for those that prefer it, we welcome them.

 


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