Recent events show that established Web2 companies (e.g., Apple, Meta, and Microsoft), known for their prosperous productization of software and hardware, are currently experiencing slowdown in revenue and growth (see: recent Q3 earnings reports).

Despite the global slowdown, the push to find growth through Web3 continues. For example, Meta recently partnered with Microsoft to integrate Microsoft Office 365 products, such as Microsoft Teams, into Meta’s VR platform Workspace, possibly as a way to retain users on its platforms in response to continued momentum for more decentralized applications.

This article will discuss the ideals of centralization versus decentralization, give insights into its history and current status, as well as its potential going forward.

Let’s dive in.

• Background

• Why Decentralization?

• Giving Credit Where Credit is Due

• Closing Remarks

At its core, the internet is a software-based network, connecting billions of fully programmable computers worldwide and enabling “the encoding of human thought, and as such [it] has an almost unbounded design space,” as put by Chris Dixon, General Partner at the venture capital firm Andreessen Horowitz.

In its first era, between 1980s to early 2000s, the internet served as community-governed open protocols that were heavily reliant on aligned interests to gain widespread adoption, an effort aided by the role of non-profit organizations that developed and ran many of the more prominent protocols.

In its second era, from the mid 2000s to present, profit-first companies such as Google, Meta, and Microsoft outpaced these protocols: first, by attracting users and third parties that provided valuable services to their platforms, leveraging multi-sided network effects, and, second, by extracting data from these network participants and competing over audiences and profits:

Blockchain technology, through its peer-to-peer networks, constitutes a value proposition beyond the potential of centralization. These are crypto-economic networks that use consensus mechanisms to verify and/or update the state of blockchains and use tokens to incentivize users and builders alike, as well as align their interests through governance.

Apart from being censor-resistant, decentralization serves to avoid a single point of failure, such as targeted centralized security exploits, by distributing data to all network participants and ideally letting users own and govern their own data:

Even as a network grows, decentralization serves as a mechanism to ensure neutrality through transparency of the open source contracts and governance structures surrounding the network's development.

Meanwhile, participants have the freedom to leave the network and build elsewhere, or sell one protocol’s tokens to buy another’s, or even vote to overhaul an existing protocol. Participants will, in theory, move to the network with economic incentives and underlying mechanisms that most align with their own interests.

Furthermore, there is a point where successful platforms of the preceding Web2 eras reach saturation. As their profit-first interests become too dominant, startups, software developers, and creators no longer find it rewarding enough to compete which, in turn, stifles innovation.

It is best known as the bait-and-switch phenomenon, where the rules of the platform might change in favor of the platform’s own services or services better aligned with the platform’s interests, resulting in loss of audiences and profits for third parties:

In comparison, the ideal towards which Web3 networks aspire provides an untapped value proposition where users/owners/creators alike are incentivized and rewarded more fairly, through on-chain programming, for their contributions to the network.

A decentralized protocol is protected from the bait-and-switch phenomena since the decision-making, known as the consensus mechanism, is not in the hands of a selected few who can prioritize their own interests over other’s.

Instead, the usage and potential changes of the protocol is bootstrapped by the issuance and distribution of a token between all network participants, such as developers, third parties and investors, into a unified economic layer. The same token, driven by the appreciation of its price and growth of its network, is then used to attract miners to ensure the robustness of the network but also for governance through on-chain voting weighted on the amount of held tokens.

However, there are aspects of crypto-economic networks that require further innovation to be able to compete with the mass adoption achieved by the leading companies of the Web2 era. Such aspects include but not limited to performance, scalability, and security, as well as efficient organizational structures:

By acknowledging these aspects, one might better understand why centralization enabled rapid innovation with unprecedented positive worldwide impact as a consequence.

First, companies rallied internally behind a profit-first mentality and created platforms that could scale due to the infrastructure provided by the internet.

Then, companies created a positive flywheel between the platform and its participants. By bringing in more users and providing more valuable services as well as improving the reliability of platforms, companies could easily provide never-seen-before value to every end-user.

Consequently, these platforms, their users, and third-party vendors could all benefit from multi-sided network effects, which continued to spur the use and innovation of even more valuable products and services within and adjacent to these platforms.

However, in the end, the centralized interest of these platforms superseded any other priorities, which is where Web2 has failed in leveraging the potential value from all participants of the network.

In conclusion, it is important to chart out the path by which we have reached the technological crossroads of the decentralization ideal. Clearly, centralization’s take on leveraging network effects through the internet, with all its pros and cons, has been the main driver of the most prosperous era thus far in human history. But where will we go from here?

Oftentimes, the discussion regarding centralization versus decentralization can be quite one-sided, as people are more inclined to highlight where decentralization is superior but less inclined to mention the challenges crypto networks face in achieving viability at scale, especially regarding key aspects such as security, scalability, and organization/decision-making.

However, given time, blockchain technology has the potential to unlock more value from networks as it serves (in theory) as a more equitable way to incentivize and align the interests of the many over the few, including in governance structures the possibility to avoid the fate that meets any Web2 network of sufficient size.

In the end, crypto-economic networks’ positive momentum is dependent on the quality of entrepreneurs and developers that it continues to attract on a global scale, as well as the regulatory landscape, which has the power to spur or hinder further innovations that could allow for mass adoption.

With Web2 behemoths entering the Web3 space, it remains to be seen whether their ethos of centralization will permeate Web3.

At OriginsNFT we leverage data-driven decision making, educational resources, and proprietary analytics to remain ahead of the curve with respect to blockchain tech and specifically NFTs. To find out more, please visit our website or Twitter.

To purchase a pass, please visit our Opensea page.

Recent events show that established Web2 companies (e.g., Apple, Meta, and Microsoft), known for their prosperous productization of software and hardware, are currently experiencing slowdown in revenue and growth (see: recent Q3 earnings reports).

Despite the global slowdown, the push to find growth through Web3 continues. For example, Meta recently partnered with Microsoft to integrate Microsoft Office 365 products, such as Microsoft Teams, into Meta’s VR platform Workspace, possibly as a way to retain users on its platforms in response to continued momentum for more decentralized applications.

This article will discuss the ideals of centralization versus decentralization, give insights into its history and current status, as well as its potential going forward.

Let’s dive in.

• Background

• Why Decentralization?

• Giving Credit Where Credit is Due

• Closing Remarks

At its core, the internet is a software-based network, connecting billions of fully programmable computers worldwide and enabling “the encoding of human thought, and as such [it] has an almost unbounded design space,” as put by Chris Dixon, General Partner at the venture capital firm Andreessen Horowitz.

In its first era, between 1980s to early 2000s, the internet served as community-governed open protocols that were heavily reliant on aligned interests to gain widespread adoption, an effort aided by the role of non-profit organizations that developed and ran many of the more prominent protocols.

In its second era, from the mid 2000s to present, profit-first companies such as Google, Meta, and Microsoft outpaced these protocols: first, by attracting users and third parties that provided valuable services to their platforms, leveraging multi-sided network effects, and, second, by extracting data from these network participants and competing over audiences and profits:

Blockchain technology, through its peer-to-peer networks, constitutes a value proposition beyond the potential of centralization. These are crypto-economic networks that use consensus mechanisms to verify and/or update the state of blockchains and use tokens to incentivize users and builders alike, as well as align their interests through governance.

Apart from being censor-resistant, decentralization serves to avoid a single point of failure, such as targeted centralized security exploits, by distributing data to all network participants and ideally letting users own and govern their own data:

Even as a network grows, decentralization serves as a mechanism to ensure neutrality through transparency of the open source contracts and governance structures surrounding the network's development.

Meanwhile, participants have the freedom to leave the network and build elsewhere, or sell one protocol’s tokens to buy another’s, or even vote to overhaul an existing protocol. Participants will, in theory, move to the network with economic incentives and underlying mechanisms that most align with their own interests.

Furthermore, there is a point where successful platforms of the preceding Web2 eras reach saturation. As their profit-first interests become too dominant, startups, software developers, and creators no longer find it rewarding enough to compete which, in turn, stifles innovation.

It is best known as the bait-and-switch phenomenon, where the rules of the platform might change in favor of the platform’s own services or services better aligned with the platform’s interests, resulting in loss of audiences and profits for third parties:

In comparison, the ideal towards which Web3 networks aspire provides an untapped value proposition where users/owners/creators alike are incentivized and rewarded more fairly, through on-chain programming, for their contributions to the network.

A decentralized protocol is protected from the bait-and-switch phenomena since the decision-making, known as the consensus mechanism, is not in the hands of a selected few who can prioritize their own interests over other’s.

Instead, the usage and potential changes of the protocol is bootstrapped by the issuance and distribution of a token between all network participants, such as developers, third parties and investors, into a unified economic layer. The same token, driven by the appreciation of its price and growth of its network, is then used to attract miners to ensure the robustness of the network but also for governance through on-chain voting weighted on the amount of held tokens.

However, there are aspects of crypto-economic networks that require further innovation to be able to compete with the mass adoption achieved by the leading companies of the Web2 era. Such aspects include but not limited to performance, scalability, and security, as well as efficient organizational structures:

By acknowledging these aspects, one might better understand why centralization enabled rapid innovation with unprecedented positive worldwide impact as a consequence.

First, companies rallied internally behind a profit-first mentality and created platforms that could scale due to the infrastructure provided by the internet.

Then, companies created a positive flywheel between the platform and its participants. By bringing in more users and providing more valuable services as well as improving the reliability of platforms, companies could easily provide never-seen-before value to every end-user.

Consequently, these platforms, their users, and third-party vendors could all benefit from multi-sided network effects, which continued to spur the use and innovation of even more valuable products and services within and adjacent to these platforms.

However, in the end, the centralized interest of these platforms superseded any other priorities, which is where Web2 has failed in leveraging the potential value from all participants of the network.

In conclusion, it is important to chart out the path by which we have reached the technological crossroads of the decentralization ideal. Clearly, centralization’s take on leveraging network effects through the internet, with all its pros and cons, has been the main driver of the most prosperous era thus far in human history. But where will we go from here?

Oftentimes, the discussion regarding centralization versus decentralization can be quite one-sided, as people are more inclined to highlight where decentralization is superior but less inclined to mention the challenges crypto networks face in achieving viability at scale, especially regarding key aspects such as security, scalability, and organization/decision-making.

However, given time, blockchain technology has the potential to unlock more value from networks as it serves (in theory) as a more equitable way to incentivize and align the interests of the many over the few, including in governance structures the possibility to avoid the fate that meets any Web2 network of sufficient size.

In the end, crypto-economic networks’ positive momentum is dependent on the quality of entrepreneurs and developers that it continues to attract on a global scale, as well as the regulatory landscape, which has the power to spur or hinder further innovations that could allow for mass adoption.

With Web2 behemoths entering the Web3 space, it remains to be seen whether their ethos of centralization will permeate Web3.

At OriginsNFT we leverage data-driven decision making, educational resources, and proprietary analytics to remain ahead of the curve with respect to blockchain tech and specifically NFTs. To find out more, please visit our website or Twitter.

To purchase a pass, please visit our Opensea page.