The reference in the title is to an important work by Sigmund Freud, "Civilization and Its Discontents." The tension between the individual and society marked by the contradiction between primal and individual urges and civilization causes much unhappiness and neuroses. A reduced form of this conflict is that between parents representing Civilization and children representing individual freedom. Freud did transport that conflict to the primal ground(i.e. the family) in The Interpretation Of Dreams. I do not buy into this Freudian view as many techniques to reconcile the individual and society have evolved over the millenia since humanity roved Africa in small bands. The analogy is the tension between decentralization and centralization. The individual as the atom of decentralization and society or governments as the acme of centralization.
I agree with Scott Stornetta who says decentralization is not a religious and doctrinaire concept; decentralization exists on a spectrum. There have been attempts to quantify decentralization. An index of decentralization was developed by the University of Edinburgh. As with any reduction of a complex concept to a number, it matters what is measured and what factors are assigned to the measurement.
The World Bank published a survey of methodology used to measure decentralization; it was based on the way governments are decentralized: central versus local control or, as they term it, national vs. sub-national. The study was based on three types of decentralization: political, administrative, and fiscal. In this methodology, based on the RAI or LAI (Regional or Local Authority Index). Most such measures target the most measurable attributes, such as Fiscal decentralization. The most difficult type to measure is Political decentralization. As these different types are not independent to the degree that they are presented as different types. Political decentralization matters the most as administrative and fiscal measures are fall outs of political decentralization.
It is the decentralization touted as basic characteristics of Web3 and of crypto-currencies that we attempt to address in this note. We drill down from a generic attempt to understand decentralization as a phenomenon and a measurable quality.
The illustration on top is of the Strait of Hormuz, by now a globally recognizable choke point for the centralized production of oil and gas and the products that rely on them for feedstock or fuel, such as fertilizer, helium and aluminum. Extraction of oil and gas at scale, refining the resulting product into petrol, diesel, airplane fuel and the like is very efficiently done at centralized scale. We also have to transport energy and its byproducts to their various destinations.
The dangers of centralization are clear when threats or actual disruption to the production and distribution become reality. Centralization appears to be efficient; however, what is centralized is also subject to single points of failure. The use of oil and gas, especially its use in automobiles, is decentralized; however, due to the nature of the conversion in engines, makes for inefficiency. The efficiency ratio of a petrol engine is around 20%. 80% of such energy goes into waste heat and emissions of harmful gases. Decentralization in use does not guarantee a happy outcome. Electricity generation using Solar and Wind and the use in battery powered vehicles are a decentralized production and use scenario. EVs are 90% efficient. Most of the energy in an EV is used in propelling the car and providing for basic functions such as light and air conditioning. As we can see from these examples, decentralization can be a boon or a curse. It just depends.
We proceed from a premise that decentralization is beneficial; the production and distribution ends can be inefficient; however, such setups are very resilient. In the case of solar and wind energy, only decentralized production is possible as much lower density energy has to be harvested through collectors spread across the world. So we cannot even invoke centralization in the production of solar, tidal or wind energy. One may take huge solar farms and their connections to the grid as chokepoints. Distribution is still a centralized reality. However with local storage using batteries, households can produce and consume in a totally decentralized way.
These are some of the examples and the unintended consequences of the Centralization/Decentralization mix in the various fields of human endeavor. We started our analysis by looking at decentralization of government. Democracy is a form of decentralization of the governance process. Direct participation in significant decisions is no longer possible because of the size of the electorate and the difficulty in gathering their votes frequently. Direct democracy did exist in ancient societies such as Athens and some villages ruled by councils. It might be useful to have a via media, putting larger questions to a plebiscite rather than decisions by a few or even one person. That too even if they have been elected by a majority. That majority reflects the past, not the present concerns of the people. Such a plebiscite is not possible unless we have a trustworthy way of expressing opinions frictionlessly. If such a reality becomes possible, it will be fueled by developments in wallet technologies.
Here we circle back to measuring decentralization as expressed in the Edinburgh Decentralization Index. The index was funded by Cardano. It is a project of the Edinburgh Technology Lab.
Each of these are analyzed using methods such as
Of course each of these methods assign a score to the decentralization type. The scores are weighted and calculated for each type and may or may not use all methods.
Metrics and assessments according to the detail as well as a overall diagram detail BTC, ETH, Cardano and LiteCoin in the 5 dimensional assessment.
I have always thought about any decentralization index to care about the three pillars: consensus, software developers and users. By introducing more pillars and more methods, the picture does not become clearer. In fact it becomes murkier; can we reduce the types to three groups? Also add analysis on transactions or use. The most important metrics hide in plain sight; the Gini coefficient is above .8 for almost all the platforms under study. This implies extreme concentration of wealth and control in crypto-platforms.
The software section reveals the concentration risk for most platforms. 70-80% of the development is done by a handful of developers in almost all cases. Counting the number of commits is only a proxy for the real influence these developers have. There could have been developers whose handful of commits could have had a much greater influence on the platform compared to some whose huge volume of commits could have included many non-critical updates.
EDI is a worthy addition to the area of decentralization studies and indices. Details reveal that many platforms which proudly boast of decentralization are not really so, especially in the area of ownership, of use and of governance. We could do with a simplification. With proper tools, it might even be possible to keep track of the evolving landscape of decentralization. Decentralization increases resilience and if done well increases efficiency.