This article was first published on Dr. Craig Wright’s blog, and we republished with permission from the author.
Decentralized systems represent a paradigm shift in technology that goes beyond the traditional centralized models. By embracing a decentralized approach, such systems unlock the potential for innovation, collaboration, and empowerment on a global scale (Tapscott & Tapscott, 2017). One key aspect that sets decentralized systems apart is their ability to facilitate updates and improvements without requiring changes to the core protocol (Swan, 2015). Decentralized systems revolutionize the landscape of technological development by fostering an environment where updates and innovations can flourish, all without requiring protocol modifications.
In stark contrast to the notion that such systems prioritize immutability and necessitate alternative means or new protocols for improvements, decentralized systems embrace a flexible approach within the existing protocol framework. This is the core of a “permissionless” protocol (Raval, 2016). When a group or even the majority can choose to change the protocol, they can undermine the investment in the system. For instance, a group could invest in a long-term project knowing that the underlying protocol will not change. This allows people to plan for long-term innovation and research projects without having to restructure what they are doing because of protocol changes.
In contrast to centralized systems, where decision-making power is concentrated in the hands of a select few, decentralized systems distribute authority and allow participants to actively contribute to the development and evolution of the technology (Zheng et al., 2017). This inclusivity is a fundamental characteristic that empowers individuals and communities to shape the future of the system they are part of. Within such systems, developers and users are empowered to build upon well-established protocols like TCP/IP, propelling the evolution of technology. By capitalizing on the stability and reliability of these protocols, new layers, applications, and services can be created to augment functionality, introduce cutting-edge features, and address emerging needs.
This can only occur when the protocol is fixed. Whenever protocols change, there are people and political issues that need to be sorted out before a project can continue. For instance, many changes to the NetWare system led to the requirement to scrap and replace software projects and because of the changing protocol structure. Companies would start building and find that the software had been updated and then required them to recode projects. In many ways, this led to corporations moving towards the Internet. As TCP/IP was fixed, development could be continued without needing to ask permission of any group or organization.
Decentralized systems recognize that technological progress is an ongoing and iterative process. While the core protocol provides a solid foundation, it is designed to be adaptable and open to innovation (Tapscott & Tapscott, 2017). This flexibility allows developers and users to build upon existing protocols, utilizing their stability and proven functionality as a springboard for continuous improvement (Swan, 2015). The Bitcoin scripting language provides programmability to the Bitcoin blockchain, allowing for the creation of complex smart contracts and various transaction types. These features contribute to its broader utility and potential for innovative applications within the realm of decentralized finance and beyond. As such, the protocol within Bitcoin doesn’t need to be changed and never needed to be.
The existence of well-established protocols like TCP/IP serves as a testament to the durability and longevity of decentralized systems (Swan, 2015). Despite being developed decades ago, TCP/IP remains the backbone of the Internet, demonstrating its ability to accommodate and support new and innovative technologies that have emerged over time. This exemplifies how decentralized systems can foster an ecosystem where improvements can be made without compromising the integrity of the underlying protocol. As discussed above, the development that occurred within TCP/IP was based upon the building of applications inside existing network layers (Swan, 2015). Unlike systems such as the lightning network in BTC, the use of the term layers referenced a Russian doll structure with increasingly complex data stored inside other data layers.
The evolution of the Internet and the birth of the World Wide Web exemplify the capacity for exploration and innovation within existing protocol layers (Tapscott & Tapscott, 2017). TCP, as a foundational protocol, provided reliable data transmission between computers connected to the Internet. However, it was through the addition of HTTP (Hypertext Transfer Protocol) that the web emerged as a powerful information-sharing platform (Tapscott & Tapscott, 2017). HTTP allowed for the exchange of hypertext documents, enabling the creation of interconnected web pages and the browsing experience we are familiar with today.
This expansion within the protocol layers demonstrated that progress and innovation can occur without fundamentally altering the underlying protocols. Developers and visionaries built upon the existing infrastructure, exploring possibilities, and harnessing the power of creativity within the established protocol framework (Tapscott & Tapscott, 2017). Despite initial resistance or skepticism, these new developments and innovations introduced transformative changes to the Internet landscape. The web revolutionized how information is accessed, shared, and interconnected, empowering individuals and organizations to connect globally and collaborate on an unprecedented scale.
The fixed protocol within Bitcoin and the unlimited block size that is set competitively by the profitability of nodes is a characteristic of Bitcoin’s design (Tapscott & Tapscott, 2016). These parameters are set competitively by the profitability of nodes. Because of this, no developer or other party can decide what protocol is or isn’t allowed to run on the network. Effectively, if it is legal, it can run on bitcoin. Moreover, nobody has the right to say otherwise (Tapscott & Tapscott, 2017). The only restraint in condition is that bitcoin is economically structured. If a transaction is large, it will cost more than one that a small. This encourages efficiency but also leads to protocol selection as those that are most valuable survive (Tapscott & Tapscott, 2017).
This example showcases the dynamic nature of decentralized systems, wherein the protocol layers serve as a foundation for continuous exploration and growth (Swan, 2015). It highlights the ability to extend existing protocols or create new layers that complement and enhance the functionalities of the underlying systems (Swan, 2015). By embracing the spirit of exploration and encouraging the development of alternative structures within established layers, decentralized systems foster an environment conducive to continuous improvement and innovation (Tapscott & Tapscott, 2017). The Internet and the web stand as powerful testaments to the possibilities that arise when individuals and communities are free to build and explore within existing protocol frameworks (Tapscott & Tapscott, 2017).
In a decentralized landscape, individuals and organizations are not limited to relying solely on centralized authorities or gatekeepers to initiate change. Instead, they have the agency to contribute their ideas, expertise, and resources to drive progress (Werbach, 2018). This collective effort allows for a diverse range of perspectives and approaches to be considered, ultimately leading to more robust and inclusive solutions (Werbach, 2018). By leaving the means of creating and innovating within the protocol open to all parties, the only restraint becomes economically based. If the system is economically viable, it will continue even if the majority don’t like it (Werbach, 2018).
Moreover, decentralized systems leverage the power of peer-to-peer networks and consensus mechanisms to ensure that updates and improvements are carried out in a transparent and accountable manner (Werbach, 2018). Decisions are often made through community-driven processes, such as governance models or decentralized autonomous organizations (DAOs), where participants can voice their opinions and collectively determine the direction of the system (Werbach, 2018). These systems can be implemented as corporations but without borders. In this way, they can operate globally, allowing people to invest in an economic structure that is inclusive and open. By saying this, we are not saying that the system acts outside of the existing legal frameworks. Rather, the system integrates perfectly with partnerships and corporate law (Werbach, 2018).
This collaborative and iterative nature of decentralized systems brings numerous benefits. It fosters an environment of rapid innovation, as developers and users can continuously build upon the existing infrastructure to meet evolving needs and address emerging challenges (Werbach, 2018). It also enables interoperability, as new solutions can seamlessly integrate with the broader ecosystem, fostering compatibility and creating a vibrant network effect (Werbach, 2018). Moreover, developers can take existing protocols and create new systems. This, of course, does not give them complete intellectual property rights but rather the ability to work within existing property frameworks (Werbach, 2018).
Furthermore, decentralized systems promote resilience and mitigate the risks associated with single points of failure (Werbach, 2018). By distributing authority and control, these systems are inherently more resistant to censorship, manipulation, and external interference (Werbach, 2018). This enhances security and ensures that the technology remains in the hands of the many rather than being subject to the whims of a few (Werbach, 2018). In a system such as bitcoin, the ability to suppress illegal material remains possible. In systems like Bitcoin, the potential to restrict the dissemination of illegal content does exist, which sets it apart from the commonly emphasized notion of censorship resistance (Werbach, 2018; Zheng et al., 2017). As outlined in the Bitcoin White Paper, it is acknowledged that certain rules may be enforced, including the blocking of illegal materials (Werbach, 2018). However, it is important to recognize that censorship measures are often imposed for reasons beyond legal necessity, encompassing a broader range of motivations (Werbach, 2018).
In summary, decentralized systems embody a new paradigm that allows for continuous updates and improvements within a stable and secure protocol framework (Tapscott & Tapscott, 2017). By empowering individuals and communities to actively contribute to the development process, decentralized systems unlock the potential for unprecedented innovation, collaboration, and the democratization of technology (Swan, 2015). The ability to build upon existing protocols ensures compatibility, while the decentralized nature of decision-making ensures inclusivity and transparency (Zheng et al., 2017). With these characteristics, decentralized systems pave the way for a future where technological progress is driven by the collective wisdom and efforts of a global community (Tapscott & Tapscott, 2017).
Annotated Bibliography
Raval, S. (2016). Decentralized Applications: Harnessing Bitcoin’s Blockchain Technology. O’Reilly Media, Inc.
Raval (2016) explores the potential of decentralized applications (DApps) and their connection to Bitcoin’s blockchain technology. The book delves into the principles, concepts, and practical implementation of decentralized applications, offering insights into how they leverage the underlying blockchain technology to revolutionize various industries. Raval (2016) provides a comprehensive overview of decentralized applications, explaining how they differ from traditional centralized applications and highlighting their potential to disrupt existing systems. The author emphasizes the role of Bitcoin’s blockchain as the foundation for developing secure, transparent, and decentralized applications.
Throughout the book, Raval (2016) explores key topics related to DApps, including smart contracts, consensus mechanisms, and decentralized storage. The author also delves into the challenges and opportunities associated with building and deploying DApps, shedding light on the potential impact of this emerging technology on industries such as finance, healthcare, supply chain management, and more.
By combining theoretical knowledge with practical examples and use cases, Raval (2016) presents a comprehensive guide that caters to both beginners and advanced readers. The book aims to provide readers with a solid understanding of decentralized applications, empowering them to explore and contribute to the evolving landscape of blockchain technology.
Raval’s work is highly regarded for its clarity, in-depth analysis, and practical approach to exploring the potential of decentralized applications. It serves as a valuable resource for individuals, developers, and researchers seeking to grasp the fundamental concepts and implementation strategies behind DApps. Overall, Raval (2016) offers an insightful and comprehensive examination of the intersection between decentralized applications and Bitcoin’s blockchain. It provides a valuable foundation for understanding the transformative potential of DApps and serves as an essential resource for anyone interested in exploring this rapidly evolving field.
Swan, M. (2015). Blockchain: Blueprint for a New Economy. O’Reilly Media, Inc.
Swan (2015) provides a comprehensive analysis of the potential applications and transformative impact of blockchain technology. The book explores the underlying concepts and principles of blockchain, shedding light on its decentralized nature and the potential it holds for disrupting traditional economic systems. Swan (2015) delves into the foundational elements of blockchain technology, including cryptographic principles, consensus mechanisms, and distributed ledger systems. The author also discusses the various types of blockchains, such as public, private, and permissioned, highlighting their respective advantages and use cases.
Throughout the book, Swan (2015) examines the potential applications of blockchain beyond cryptocurrencies, exploring its role in areas such as supply chain management, healthcare, voting systems, intellectual property, and more. The author provides real-world examples and case studies to demonstrate the transformative potential of blockchain technology across diverse industries.
By discussing the challenges and limitations of blockchain technology, Swan (2015) offers a balanced perspective on its adoption and scalability. She also explores emerging trends and future possibilities, including the integration of blockchain with other technologies such as artificial intelligence and the Internet of Things. Swan (2015) has been recommended for its clear explanations, comprehensive coverage, and practical insights into the potential of blockchain technology. Swan’s work appeals to both technical and non-technical readers, providing a valuable resource for individuals, businesses, and policymakers seeking to understand the implications and opportunities presented by blockchain. However, many of the terms are based on community promotion and not underlying fact.
Tapscott, D., & Tapscott, A. (2017). How blockchain will change organizations. MIT Sloan Management Review, 58(2), 10.
Tapscott and Tapscott (2017) provide a thought-provoking analysis of how blockchain technology has the potential to revolutionize the way organizations operate. Published in the MIT Sloan Management Review, the article explores the transformative implications of blockchain technology on various aspects of organizational structures and processes. The Tapscotts delve into the fundamental concepts of blockchain technology, highlighting its decentralized nature, cryptographic security, and distributed ledger system. They argue that blockchain has the potential to redefine trust, enhance transparency, and streamline operations in organizations across industries.
The authors discuss how blockchain technology can disrupt traditional intermediaries and facilitate the direct exchange of value between individuals or entities. They explore the concept of smart contracts and the potential to automate and enforce contractual agreements, reducing reliance on traditional legal frameworks. Furthermore, the Tapscotts analyze the role of blockchain in enabling decentralized autonomous organizations (DAOs) and how this new form of organizational structure can transform governance, decision-making, and accountability. They also address the potential challenges and risks associated with blockchain adoption, including regulatory considerations and the need for interoperability and standardization.
The article draws on real-world examples and case studies to illustrate the potential impact of blockchain on various industries, such as finance, supply chain management, healthcare, and more. Tapscott and Tapscott (2017) emphasize the need for organizations to embrace blockchain technology and adapt their strategies to leverage its potential benefits. The work provides insight into the transformative power of blockchain technology and its implications for organizational design and governance.
Werbach, K. (2018). The blockchain and the new architecture of trust (information policy). Kevin Werbach.
Werbach (2018) explores the concept of blockchain technology as a transformative force in reshaping trust-based systems. Werbach’s work focuses on the potential of blockchain to revolutionize various industries and the implications it has for creating new models of trust and governance. Werbach (2018) delves into the fundamental principles of blockchain technology, emphasizing its ability to enable trust in a decentralized and transparent manner. He examines how blockchain’s distributed ledger system and cryptographic security can facilitate secure transactions and eliminate the need for intermediaries.
Throughout the book, Werbach (2018) explores the diverse applications of blockchain beyond cryptocurrencies, including supply chain management, identity verification, intellectual property rights, and more. He provides real-world examples and case studies to illustrate how blockchain can establish new forms of trust and improve efficiency and accountability in different sectors.
The author also addresses the challenges and complexities associated with blockchain implementation, such as scalability, regulatory considerations, and the need for industry-wide collaboration. Werbach examines various governance models and explores the potential for blockchain technology to enable decentralized decision-making and consensus mechanisms.
The book’s interdisciplinary approach and focus on trust as a foundational element make it an essential read for anyone interested in the future of technology, economics, and governance. Werbach’s well-researched analysis and thought-provoking exploration of blockchain’s potential as a new architecture of trust make the work worth reading.
Zheng, Z., Xie, S., Dai, H., Chen, X., & Wang, H. (2017). An Overview of Blockchain Technology: Architecture, Consensus, and Future Trends. 2017 IEEE International Congress on Big Data (BigData Congress), 557–564. https://doi.org/10.1109/BigDataCongress.2017.85
Zheng et al. (2017) provide a comprehensive analysis of blockchain technology, focusing on its architecture, consensus mechanisms, and potential future trends. The paper was presented at the 2017 IEEE International Congress on Big Data. The authors offer a detailed exploration of blockchain technology, beginning with an examination of its fundamental architecture. They discussed the key components of blockchain, including distributed ledger, cryptographic techniques, and data structure. The paper also delves into various types of blockchains, such as public, private, and consortium, outlining their characteristics and use cases.
The authors analyze different consensus mechanisms employed in blockchain systems, including Proof of Work (PoW), Proof of Stake (PoS), and Byzantine Fault Tolerance (BFT). They discuss the advantages and limitations of each consensus mechanism and explore their impact on blockchain’s security, scalability, and energy efficiency. Furthermore, the paper highlights potential future trends in blockchain technology. The authors discuss emerging concepts, such as sidechains, sharding, and interoperability, which aim to address scalability and interoperability challenges. They also examine the integration of blockchain with other emerging technologies, such as Internet of Things (IoT) and artificial intelligence, and discuss their potential impact on the evolution of blockchain technology.
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