Written by Grace Rachmany
Have you noticed that most of the ICOs coming out don’t look like anything new? Yes, they might have some interesting technology, but at the core, there’s a lot of talk about decentralization and not a whole lot of walk.
Before we go into discussing what kinds of organizations should be decentralized, let’s talk about what a decentralized organization is. Today, the best examples we have of decentralized autonomous organizations (DAOs) are outside of the crypto space, as outlined in Ori Brafman and Rod Beckstrom’s The Starfish and the Spider. In that work, they cite organizations like Wikipedia, Alcoholics Anonymous, and Al Qaeda. The internet itself, if it can be considered an organization, is also an example.
A DAO is:
- Decentralized: no governing body or manager makes decisions. Each cell of the organization can make its decisions and take actions independently. Individuals can make their own new cells.
- Autonomous: every cell of the organization can operate without the other ones. Destroying a part of the organization will have minor, if any, impact on the rest of the organization.
How can you tell an organization that should be decentralized?
First, let’s eliminate the obvious. If the goal is to get rich, or to make investors rich, decentralization is not appropriate. The perfect vehicle for making a lot of money is a centralized organization, preferably for-profit, but we know of many centralized governments and non-profits with more money than the Catholic Church. (Hence the phrase.) Centralized, for-profit companies are empirically well-proven to make humans rich.
At this point, many people would ask: “Then why do I need blockchain?” You don’t. People have been making profitable companies for hundreds of years. You don’t need blockchain or decentralization.
In fact, decentralization is best for organizations where money-making is not a significant goal. That’s not to say that money won’t be made, but decentralization does not favor the accumulation of wealth by a small number of people. That’s because it’s DEcentralization. DE as in NOT. Wealth may be generated, but in a decentralized system, it would be distributed throughout the system, because there is no “head” of the organization to concentrate that wealth. By the way, this aligns with the idea of holding a utility token. The utility tokens are held by a lot of people, not by one governing body, and everyone with a stake in the health of the system will benefit.
Decentralization makes sense when:
- The mission is so complex or expensive that a large group of entities will perform it better than one large entity.
- The resource being created, developed or managed is a common resource, that is, something that “belongs” or should belong to a community, not to a monopoly or controlling entity.
- The organization is similar to a standards body, professional organization or consortium for the industry.
- Communities are looking to create something of value to themselves, and they can create it without buy-in from anyone outside of the community.
- Profit is not the primary outcome. In some cases, profit is not even necessary for the functioning of the organization, and/or people are happy to contribute for free.
- The organization uses a different value system than monetary value. For example, Steem or an election campaign. The measure of success is not a monetary measure.
The most common use-case today is for just about anything having to do with big data, with the emphasis on BIG. People are increasingly revolted by the control that companies have over our lives through the collection of personal data. The scandals with Facebook’s influence on international politics is just one example of where centralization and for-profit motive have caused outrage. Facial recognition by the Chinese government is another. GDPR is a centralized body’s failed attempt to mitigate this problem. (I say failed because the result was just that we had to click “yes” a whole bunch of times. We weren’t given “no” options or a range of privacy settings. Just “Yes, please continue to invade my privacy in the same way you did prior to regulation”.)
Big data, in a profound way, belongs to each individual and to all of humanity simultaneously. Large data sets can be used for diagnosing and treating disease, reduction of environmental damage, emotion recognition, security screening at airports, natural language parsing, improving crop yields, and a myriad of other uses. Billions of points of data are generated, and in theory, each point of data belongs to the person who generated that data.
For the data to be useful, however, it needs to be aggregated and parsed. It seems obvious that a decentralized consortium is the natural way to process large data sets. For example, every entity collecting health data should have a way to share that data. Today, we have hundreds, if not thousands, of organizations trying to cure cancer without an efficient way to share data. On top of that, we have separate organizations parsing that data, and no way for them to share their results, algorithms, or compute resources in a way that would optimize progress.
The Semantic Web is an attempt at creating a data sharing protocol, but it hasn’t gone far. Today, we are seeing ICOs in very specific areas of data sharing, analysis, research and facilitation. These ICOs strive to create protocols and interfaces for sharing data. We’re seeing decentralized platforms for sharing data in the areas of ecology and environmentalism, geospacial data, facial recognition, natural language processing, agriculture, and health, among other things.
Universally, when creating decentralized data sharing consortia, founders mention that they are struggling to implement decentralized governance because there aren’t yet proven models, or because they can’t incorporate and get a bank account as a DAO. Most of these are establishing themselves as foundations, with some using for-profit structures with the intention of changing that once there are proven models. Others have several entities in different countries, which is sub-optimal but the only way they can legally function given the decentralized nature of their organization.
Another area where we are seeing decentralization as an organizing principle is in gaming. Gamers and game developers have all the resources they need to create, maintain and run their own games. They are also very accustomed to trading using dedicated game currency (tokens). Frequently, though, developers don’t have the cash to develop and maintain the games they want. Decentralization is offering models for fundraising through ICOs that can keep the control in the hands of the gaming communities. Through open-source models there’s potential for gamers themselves to determine the way the game is developed.
Gamers now have the ability to create a wide range of in-game economies that were theoretically possible before, but somehow always ended up in the hands of centralized corporations. When a corporation owns the game, any online items you build are not your own; they belong to Microsoft or EA or Maxis or Linden Labs. Decentralization would allow gamers to own their own communities, and we are seeing a variety of models developing in the ICO space.
Gamers are on the cutting edge, but we’ll also start to see more self-determining communities. We’ll see homeschoolers and teachers exchanging curricula, parents exchanging hand-me-downs, and neighborhoods creating exchanges of services. Most of these communities will last for limited periods of time, but many will stand the test of time, creating their own decentralized forms of governance and self-regulation.
Finally, decentralization should be implemented for any resource that is a public good, or “commons”. The tragedy of the commons is mostly mythological. Historically, when people share resources and their behavior is visible to others in the community, they naturally self-organize to preserve the commons. Just as nobody wants to eat that last piece of sushi, societal norms form naturally around visible shared resources.
The tragedy of centralized ownership, not the tragedy of the commons, has led to private and paid beaches, polluted air, and exploitation of natural resources. Distributed ledger technology gives communities the potential to share ownership of these kinds of resources while maintaining visibility of each individual’s behavior. In a transparent, decentralized system, individual behavior can be regulated by automated sets of rules, or enforced by community norms. Currently, the technology is still in the experimentation stage, and there are very few models to follow. However, over time, we will see communities and potentially even large regional governing bodies to oversee resources that belong to the community.
It seems timely as we watch major shifts in international politics and the configuration of bodies such as NATO and the G7, that we are looking at the potential of this new technology to create new paradigms for international collaboration in the form of decentralization.