Would a centralized blockchain undermine the technology’s purpose as a shared public ledger? Yes, and here’s why…
Blockchain creates the decentralization of data, the opportunity for transparency, and a trustworthy alternative to becoming too “big”. Big banks, big companies, and big governments create more risk, reduce innovation, and can violate trust. Centralized blockchain would undermine the technology’s original purpose as a shared societal ledger because it would place too much power within the control of a single entity.
The energy industry is an example that demonstrates how centralization can increase risks, stifle innovation, and violate trust. Until recent years, energy was, arguably, the most valuable commodity in our economy. Without power, the economy halts—food spoils, production stops, transportation ceases, and we endure heat or cold without protection. While the MVP of the economy has now shifted to data, the energy sector’s centralization provides many potential parallels.
Creates Risk: Our centralization of energy in Hawaii is an example of risk. Until recent years, 80 percent of Hawaii’s energy was imported palm oil. To defeat Hawaii, no planes needed to drop bombs, they only needed to destroy the fleet of ships carrying oil to the islands. This threat created high risk for our national security, because the centralized source of energy meant there was no significant back-up plan if something disrupted the palm oil supply process. Residents in Hawaii were in danger of losing their most valuable resource and the US overall would be negatively impacted with strategic security risks.
Similarly, if Blockchain becomes centralized, we risk another “too big to fail” scenario like the banking disaster of recent years. By allowing one entity, or only a select few, to control the system, we create greater risks should failure occur. Distributed systems mitigate risk and provide a check-and-balance approach that keeps the system’s availability and reliability in balance.
Reduce Innovation: Because traditional, centralized, fossil fuel is such an intricate part of our US economy, it became highly subsidized by the government. Our economy is now dependent on those subsidies, so it would be very difficult for leaders to reduce them. This creates a capitalism trap—without “true costs”, decentralized sources of energy cannot compete effectively. It hinders innovation by skewing the market in favor of the “big system”, and environmentally detrimental methods of the past.
Changing to true costs of energy now would raise the cost of living significantly—creating the highest negative impact on the poorest Americans. Despite the risks, in 2014, new clean energy goals were established in Hawaii via state law. By creating new legislation that helped to balance the economics of local solutions, innovation prevailed. Decentralized sources of energy sprang up on buildings, in the water, and atop all new homes. These new sources reduced the risks of commodity price hikes and increased energy security for all residents.
Like this example, if Blockchain becomes too centralized, it will lose its economic innovation. The financial incentives will be driven by a single entity, so competition will be eliminated. Decentralization allows the power of creativity to be placed in the hands of everyone.
Violates Trust: Centralization of power and money set the stage for potential corruption. Those in control begin to look after their interests, often at the cost of others with differing, or less financially influential, interests. Powerful utility companies are able to commit atrocities that are hidden from the public. Consider the largest utility provider in the US, TVA, had a slurry spill dumping toxic waste into our Tennessee and surrounding area streams that stretched into several counties. The spill was 100 times the size of the Exxon Valdez incident and 10 times the size of the BP spill in the US Gulf. Yet, most Americans never heard of it.
Centralizing Blockchain will create the same propensity for cover ups, hidden agendas, and a general lack of trust from the public. Having only one entity responsible for the largest data ledger system in the world places too much power under the authority of a single source.
How could blockchain technology achieve scale while remaining decentralized?
Blockchain technology can achieve scale while decentralized the same way the computer industry has done so. In 1935, Thomas Watson, president of IBM, stated that the world may have use for up to five computers. Bill Gates and Steve Jobs had a different idea, however. They thought if you put the power in the hands of the people, innovation would prevail. And so it has!
Blockchain is no different. Eventually, we will have the ability to decentralize the system among the Cloud. Contributors may have the prospect for shared ownership and governance. Like a cooperative approach, everyone owns a little and therefore has some accountability and opportunity to innovate as needs and wants change over time.