Crypto's war of words

Even if you don’t care much about cryptocurrencies or its various offshoots — NFTs, DeFi, Web3 apps and the like — there is still a war of words underway that has significance beyond the future of money. At issue is how we define decentralization and what that means for how, when, and where we regulate the computer code or software rails that will guide the internet into the future.

On an intuitive level, decentralization makes sense. It’s the idea that control of information or resources is a networked good. To participate you opt-into the network. To not participate, you opt out. In a perfectly decentralized world, there are no gatekeepers. Just permissionless networks that allow various levels of input and commitment.

The main selling point for decentralized networks is that they can theoretically create a flatter internet in terms of control, power, and leverage. Or, put simply, decentralized networks don’t have off-switches. The result is that decentralized networks are tools that will weaken the grip of this generation’s internet giants by providing alternative products and services allowing network participants more control over their data and financial resources.

If you are philosophically or economically opposed to information monopolies — or at the very least if it bothers you that big companies are making billions of dollars by learning about and monetizing your proclivities, then embracing a new kind of internet architecture based on decentralized networks should make sense.

One issue with getting to a more equitable networked future, and it’s a big issue, is that the definition of decentralized is still fuzzy. Companies rushing into the budding crypto and Web3 space are quick to call their products and services decentralized. But we’ve also seen, on numerous occasions, that those same companies hit some kind of pause button when things don’t go as planned.

A big disconnect between the idea of behind the technology and the constraints of reality still exist.

So while decentralization plays well from a marketing perspective, it gets jumbled from the standpoint of in-the-wild implementation.

It’s especially complicated when trying to articulate how all facets of these new kinds of networks are actually decentralized — like are there enough different kinds of validators, or is there a healthy geographical distribution of nodes, or are enough of the network’s native assets held in non-custodial wallets by a large enough group of participants?

The list goes on, but why does any of this matter?

It’s hard to make clear rules or have a well-articulated position about ambiguous things — and crypto and its offshoots are no exception.

Regulators around the world are debating the best way put guardrails around services that operate within the very fluid decentralized space. Increasingly, technologies, ideas, and companies that rely on the vision of what could be made possible by decentralized networks are becoming the target of politicians and bureaucrats looking for an easy mark. This is especially true following all of the high profile scams that send crypto market valuations and sentiment into a tailspin last year.

The concern with the sudden and intense interest among political operatives and the regulatory community is that there is a steep cost of getting rules for global decentralized systems wrong. Innovation at the planetary scale, which was made possible because the early internet’s foundational protocols related to publishing content, sending emails, and sharing information remained open and loosely regulated.

The same model of open protocols and regulated companies and activities that are built on top of those protocols could work in the decentralized world. In fact, for the past several years, that has mainly been the model in the United States and Europe at least. But what we are starting to see is a deeper dive by regulators into murkier jurisdictions, which again leads back to the challenge for succinctly defining decentralization in a way the is meaningful.

The risk is that rules will be made about the potential implications of things — whether it’s a mixing technology designed to protect the privacy of users or a digital wallet that allows users to hold their own private keys — that ultimately makes it impossible to build decentralized technologies at any meaningful scale.

In the end, we are talking about our tolerance for embracing future that we can’t totally describe yet. As more and more technologies and services are built with the decentralized ethos in mind, we’ll have an opportunity to see what works and what doesn’t.