Web3 and Decentralization
Decentralization: the transfer of control of an activity or organization to several local offices or authorities rather than one single one. Decentralization is a core tenant of Web3 — It refers to the distribution of control, authority, and decision-making across a network of participants rather than relying on a centralized authority or entity. This concept is a fundamental principle of many blockchain and cryptocurrency technologies that make up the Web3 ecosystem. I've written previously about how Web 1.0 brought us decentralized access to information, Web 2.0 created social networks and API based services, Web 3.0 builds upon previous iterations of the web by throwing ownership and governance mechanisms into the mix.
On the surface, decentralization is considered a good thing, as it removes the undue influence and control of data that large centralized platforms built by the likes of Facebook, Amazon and Google retain. It also mitigates against single sources of failure which anyone who's experienced AWS or Azure outages can testify to.
How much decentralization do we need?
Do you want every single product or service you use to be decentralized to the point of there being no aggregator platforms for them? Or perhaps no corporate entity providing accountability? Instead, you have loose collectives of people for you to reach out to? Whilst this is taking the concept to the extreme end of the spectrum, one can argue this approach can be beneficial with utilities that transcend geopolitical borders, such as blockchain networks.
However, it is less helpful when you want to find accommodation to book a holiday. You don't want to be emailing or calling a list of hotels, or landlords to determine the availability of somewhere to stay, an aggregator service such as a marketplace is incredibly helpful here as it saves you significant amounts of time and money. Neither do you want there to be just one marketplace, you'd like several options, but not so many that the time to work through them outweighs the benefit of choice.
This is the challenge with decentralization, for many aspects of your life or business, you don't want there only being a single centralized incumbent to deal with, but neither do you want hundreds of smaller options to consider, creating cognitive overload.
One could argue that we have this balance with cryptocurrency exchanges, where we have Binance, FTX and Coinbase dominating. While Binance is the largest of the three (by a somewhat significant margin at present), a healthy amount of competition exists between the firms to ensure that businesses and consumers have an adequate choice as to which exchange venue they wish to use. There are also multiple tiers of exchanges below them, such as Kraken, BlockFi and Gemini.
Although there is the criticism that these platforms are not decentralized, and if one of them goes down, you're directly impacted by this. You do have other decentralized options such as UniSwap and dYdX which are decentralized exchanges (DEXs), but there are risks with DEXs due to the responsibility users have to be both savvy enough to manage their crypto and interact with the website correctly, which your average holder is unlikely to want to become given the barriers to entry.
Standardization in Web3
However, what is common among these different platforms is that the digital assets they support are standardized, and this is a crucial point. For a greater number of decentralized services to thrive, there needs to be standardization in the underlying product or service. This could be in terms of the digital asset they support, or perhaps it's in how they interact with customers. For instance, by using approaches such as self-sovereign identity, the friction for users to join and migrate from one service to another is somewhat lower. It also reduces the data burden on organisations to provide such services.
As it stands an email address and password is the standard for signing up to online services, with additional data provided by the user depending on the needs of the service. Some of these are for regulatory reasons, such as KYC checks, others are simply because they want to obtain demographic data about you and to gain greater insight into as you use their services.
This has resulted in the creation of all of these different data silos across organisations where many companies' business models are driven by understanding more about their customers than their competitors, and meanwhile, the customers are inundated with targeted products and services that exist as marketing emails or click-bait adverts.
If a person's data is spread enough across different online services, one can take the position that Web2 is already decentralized to a degree. However, it's incredibly inefficient for companies to all have similar data for their users and painful for people and businesses when they need to provide the same data again and again to use online services.
Self-sovereign identity solution
This is where self-sovereign identities will help, as the data duplication is reduced, with blockchain applications and platforms providing the neutral, decentralized layer of trust underpinning these services. Using this approach, customers are in control of their data and only have to reveal the information that is required by the supplier to carry out the required product or service.
Whilst standardization will take time, this will significantly reduce the data sharing needs of customers, and enable them to inherently trust that an entity they are dealing with is a real person or company, without them having to disclose unnecessary information about them in the process of signing up to the service.
Viewed through these lenses, there are multiple end-states that can dictate if we have the right amount of decentralization in Web3 products and services.
- Users are not overwhelmed with too many choices: there need to be services that aggregate other services, such as marketplaces, but with healthy competition at the top
- There is standardisation across products and services, be that with the types of assets supplied, or in the onboarding process with low friction user experiences
- Data is not being duplicated unnecessarily across organisations and users have control over what information they are disclosing, which blockchains and self-sovereign identity can help facilitate
If this can also be coupled with the data availability and resiliency guarantees offered by public blockchain networks, we'll find ourselves in a much brighter future than we are currently.
Yes, this will take time, and who knows maybe it won't be until the advent of Web4 that we actually reach this place. However, having these infrastructures behind the scenes would be a phenomenal achievement were we to reach it.