Optimizing the trade-offs between centralized and decentralized platforms

Decentralization maximalists argue that you cannot trust a centralized organization and thus, everything should be decentralized. And thanks to the advances in blockchain technology, that’s now technically possible.

These proponents of decentralized platforms can offer up numerous reasons why the decentralized world is superior; the chief two reasons are avoiding censorship and eliminating the rake that centralized platforms take.

On the flip side, supporters of centralized platforms argue that centralized technologies are way more efficient to run than decentralized platforms. Instead of having to run every single transaction through the blockchain (for which miners get paid / rewarded for transaction confirmations), it’s much less costly to store transactions in a central database where a central authority ensures they are correct.

Summing up the two sides: blockchain-based models are far more trustworthy than centralized models, but they are also fundamentally more expensive. You pay for the extra trust and always will—so the real question is then to figure out where the extra trust is worth the extra cost for centralized platforms.

The best use case that has been developed to date is that of distributing digital assets through the blockchain (i.e. tokens through ICO’s) where the new, decentralized system is clearly superior to the existing way of selling assets through middle men and/or centralized systems. We are probably just at the very beginning of the wave where every single financial asset will be tokenized and distributed through the blockchain.

But everybody who thinks that blockchain will be limited to financial assets should keep two things in mind. First, the technology is still in its infancy and costs will come down over time. This will make blockchain technology viable for lower value transactions. And more importantly, we will see the rise of hybrid centralized/ decentralized systems in which core features where trust plays a huge role will be built on blockchain technology while others will be centralized.

The creators of the Cryptokitties project have had some of the most thoughtful discussions around what belongs on the blockchain and what doesn’t. They may not have gotten everything right in their initial launch (you can read some of the criticism of copyrights here). But, it is great to see product teams thinking through the tradeoffs of centralized and decentralized systems when designing a product.

Mack Flavelle wrote a detailed, thoughtful response to Greg McMullen’s critiques on Medium:

“Eventually we settled on two things being absolutely paramount to a decentralized, trustless game: ownership and verifiability. Ownership: No one except the cat owner can decide what happens to a cat. Verifiability: It’s transparent and obvious to everyone why your cat is different (the genetics). These things had to live on the blockchain.”

In order to use the advantages of decentralized systems in a broader way, we will need to get product teams to think more about these trade-offs. Things are rarely black or white, and the future might not belong to either decentralization nor centralization maximalists!

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