Bitcoin is decentralized, but it probably doesn‘t mean what you think it means.

When discussing crypto-currencies, what most people mean by “decentralized” is a system in which power is extremely diluted. They picture a flat organization with an egalitarian power structure. Such a system is robust to power grabs since power belongs in the hands of the many, not the few. In common parlance “decentralization” refers to an outcome of the protocol.

This is a perfectly reasonable and intuitive definition of “decentralized”, but it isn’t the technical definition used in the context of systems theory.

In this lingo, a decentralized system is one where participants act on local information and no participant is given an explicit role. For instance, specifying a trusted third party in a protocol is centralized because this party is given a distinctive role.

Superficially, this may seem very similar to the common parlance definition. It’s not. In particular, there are no guarantees that a decentralized protocol produces the expected flat power structure. Conversely, a centralized systems may very well end up producing a flatter structure than a decentralized one.

Embryo-genesis — the formation of complex organisms from a single zygote is a great example of a decentralized system producing a highly hierarchical outcome.

Indeed, in a forming embryo, every cell runs the same DNA code and responds only to local signals. This is a purely decentralized system. Yet, those local signals end up activating certain genes and deactivating others, causing the cells to differentiate. A human body is a hierarchical system: most of sensory perception, decision making and most motor control happen in the brain. Yet, it was created through a completely decentralized procedure.

Bitcoin is decentralized in the sense that no participant or set of participants is explicitly given a specific role in the protocol.

However, the distribution of power within Bitcoin is currently extremely unbalanced! A handful of miners represent the vast majority of the hashing power. It would suffice that 2 or 3 miners be compromised (or decide to collude) to deal a devastating blow to the security of the network.

A coalition of 100, reputable, non profit organizations located all around the world would certainly be less likely to collude or become compromised than two or three mining pool operators. This “centralized” solution would actually have a much safer distribution of power than Bitcoin currently has. Yet, it would carry the stigma of being “centralized”.

Why this stigma? One possible explanation is psychological. As a species, we are naturally suspicious of privilege. It is generally a healthy instinct as most people who proclaim they are subject to different rules generally do so to justify oppressing others. By definition, a centralized protocol explicitly gives some authority to specific parties. This feels like a privileged class, like nobility, this feels wrong.

However one should look at the amount of power that is effectively granted to these parties. In the case of a centralized ledger maintained by multiple trusted party, that de jure power can be incredibly tiny, much smaller than the de facto power held by Bitcoin miners.

Should we just learn to stop worrying and love centralized protocols? Perhaps not.

There are two other reasons, beside psychological biases, to avoid centralized protocols.

First, a centralized protocol which relies on public reputation can be attacked through legislation. If it becomes illegal to participate in a protocol, a public entity can be prevented from fulfilling its role in the protocol, or worse, subverted.[1]

Second, hard coding a particular role for specific participants isn’t future proof. Institutions evolve, alliances shift but more importantly, a fixed set of institutions is a sitting duck for infiltration and subversion.

What are we left with? I think there is a middle road: decentralized protocols in which holders of the currency are able to dynamically delegate power towards parties they deem reliable. What if Bitcoin holders could simply vote out ghash.io? We might have a decentralized systems in which participants are given the opportunity to enforce a flat power structure.

[1] it bears repeating that Bitcoin’s decentralized protocol can only be justified, from an engineering perspective, if the threat model includes a quasi-worldwide ban on the currency by governments. It’s not nice to say in polite company, but it’s true