The power of decentralization
If you were to tell the average person, “decentralized blockchains are revolutionary and are going to change everything”, they’ll give you a bewildered look. Get into an in-depth explanation of the concept of decentralization and its implications, and throw in a few crypto buzz words and watch their eyes glaze over. Yet, hyperbole aside, decentralization does have real implications and is radically different than how civilizations have conducted business for centuries.
Take any modern institution, a bank, a school, a credit report company, they all house and store their files in a centralized system. By centralized, we mean the information is aggregated in a single point, owned and managed by a single entity. While this may be efficient, it certainly has drawbacks. In the age of technological innovation, cybersecurity is becoming increasingly important. It seems a day doesn’t go by without some sort of security breach or hack. With centralization comes a single point of failure that can be exploited by an adversary. One of the most notable examples in recent times is credit reporting company Equifax’s breach, in which more than 140 million people’s information was possibly compromised. These types of attacks, and the sheer magnitude of the effects, are becoming commonplace. The decentralized nature of blockchain provides a possible solution, or at the very least a much-needed added layer of security.
The Lisk Academy states decentralization as:
The decentralized nature of blockchain technology means it doesn’t rely on a central point of control. A lack of a single authority makes the system fairer and considerably more secure. The way in which data is recorded onto a blockchain epitomizes its most revolutionary quality: its value of decentralization. Rather than relying on a central authority to securely transact with other users, blockchain utlilizes innovative consensus protocols across a network of nodes, to validate transactions and record data in a manner that is incorruptible. As a blockchain is a ledger of information it is extremely important that the information being stored is honest and accurate.
So if there is no central authority who runs a blockchain network?
Incentivizing and Network Effect
Let’s look at Factom’s protocol and how it’s managed. While Factom was created by a company called Factom Inc., the company itself will have very little control over the actual network, in fact they will be just one of approximately 65 players, and that process has already started. Over the past year, dozens of individuals dedicated to the Factom protocol have been putting an immense number of hours into creating a governance structure for the protocol. These individuals are located all around the world, and have formed companies in order to promote the protocol, develop infrastructure, and drive worldwide adoption.
Factom Inc. hasn’t paid these individuals and companies a dime, so what’s their incentive?
That’s the beauty of blockchain, all of these diverse individuals and companies are united and driven by a common goal – to help promote use of the protocol. The incentives are built into the protocol, and it’s the protocol that pays each of these individuals for their work in Factom’s native cryptocurrency called Factoids. When everything is up and running, the network will generate approximately 73,000 factoids a month, distributed among approximately 65 entities. These entities will use these funds to drive development and adoption of the protocol across the world. This will result in a massive network effect that will result in thousands of individuals working separately towards a common goal. There will be no central figure directing these entities, and the rules are simple: drive adoption.
An adversary that wanted to take control of Factom’s network for malicious purposes would have to compromise a majority of these entities, and with each entity being paid in Factoids to help secure the network, each entity has a very strong incentive to protect the network from intruders. Read more on this governance here.
Cryptocurrency is essential to any blockchain network, as it provides an organic incentive to individuals interested in helping secure and run the network. There are no borders and barriers, and anyone anywhere around the world is able to participate. While blockchain isn’t a solution to everything, there are many industries that stand to benefit from it, and as Factom’s David Johnston has predicted:
“Everything that can be decentralized, will be decentralized.”