Skip to main content

Centralized vs Decentralized Platforms

  • It is about control
  • Centralized systems are controlled by a single agent
  • Decentralized systems have resources controlled by multiple agents
  • It's also a continuum, it's not discrete. There's a continuum of centralization to decentralization.
  • The implementation of such platforms may be distributed or monolithic. Most decentralized systems are also distributed.
  • The effects of decentralization:
    • Censorship resistance
    • Competitive vs non-competitive - which means relying on market forces, wisdom of the crowd
    • Redundancy and increased availability, removing single points of failure, robustness
    • Scalability, assuming natural monopolies are not present, decentralized systems can scale better
    • Politics! Some political agendas are decentralization friendly, some agendas less decentralization friendly
    • Avoiding the centralized tax can increase the efficiency, that means reduction of rent-seeking behaviour
    • Trust and power (you need more consent of the the platform users to do anything, "consent of the governed")
  • Maybe it's better to do pros and cons instead, cause centralized systems have advantages as well such as natural monopolies, spam control (ddos capabilities).

Social networking platforms are centralized reputation networks. They act as middlemen between consumers and producers of trust and user-generated content.

There's a movement towards decentralized platforms that gets rid of middlemen. The common factor all decentralized systems is need to have some mechanism of managing trust.

Imagine a decentralized alternative to spotify where artists can create music and earn music coins, and listeners have to buy music coins to listen to music. It's a realization of peer to peer exchange of digital content with music coins acting as micropayments. It will be a lot fairer system avoiding the spotify tax. Spotify's tax is deserved due to all the work involved in making such a platform. However much of its tax is just rent from controlling intellectual property. The means of production can be more fairly allocated throughout society with decentralized systems.

Decentralized platforms require a completely new decentralized business model. Who funds the development of decentralized systems? Where does the money come from? How is it sustainable? Who pays for all the infrastructure to make the platform highly available and highly performant?

It make sense that digital property would be the first class of assets that make the move to decentralization. Digital property has close to 0 marginal cost for reproduction, its distribution cost is amortized over fixed cost infrastructure investments like 5G telecoms.

Physical assets have centralized economic efficiencies similar to why some assets form natural monopolies. However even in the physical world, there are pressures to decentralize coming from factors of politics, redundancy, sovereignty, privacy, anti-competition laws, and supply chain risk.

Note that decentralization is about control and trust. It is not necessarily about distributed systems. Distributed systems are used in centralized and decentralized platforms. However most if not all decentralized platforms would use distributed system technology.

More information about this: