Rebutting Haseeb Thoughts on Decentralization:

NOTE: This article is in response to this essay by Haseeb Qureshi.

ADDITIONAL NOTE: Haseeb is my friend and an investor in my startup. In real life, I love him dearly and respect his wisdom. In this letter I will take a different tone of voice for the sake of debate.

Dear Haseeb,

I sense that you and I have very different ideas of what crypto is meant to be. Where you see a product to be marketed, I see a technological paradigm shift. And as with all such waves of innovation, the marketability lies in the way new technologies can improve people’s lives.

You say that we should worry about building things worth decentralizing in the first place, while I would say that almost every existing product or service is worth being decentralized. What crypto brings to the table is the means to achieve this end on an unprecedented scale. This is where all of its greatest potential lies.

Bitcoin’s Decentralization Goes Beyond Pragmatism

You ask the question: why did Satoshi make Bitcoin decentralized? You then state that this was a trick question, and that the answer was that he had no choice. That making it decentralized was the only way it could have possibly worked, because all previous attempts to make digital money had gone bankrupt or been shut down by governments. You are, of course, correct, but it is only a fraction of the whole picture. You’ve left out a vital piece of context, which is the fact that Bitcoin was founded as a direct response to the global financial crisis of 2007 and 2008.

This is evidenced by the fact that Satoshi took the time to include the January 3rd 2009 Times headline “Chancellor on Brink of Second Bailout for Banks” in Bitcoin’s genesis block. So yes, making Bitcoin decentralized was a matter of pragmatism, but it was also a matter of principled ideology. Satoshi was calling out the irresponsible monetary policies of governments and central banks.

He was showing the world that there were proactive alternatives to accepting the status quo.

Technology Requires True Innovation to Succeed

What makes crypto different from all other technologies? It is the degree to which a cryptocurrency can operate in a permissionless and decentralized way over time. This is the only thing about it that is truly novel — the element that justifies the technology’s “heavy lifting” and heavy ongoing security cost. It’s exactly those attempts to ride this public wave without actually achieving this state that are dead on arrival, just like all the pre-Bitcoin attempts to create a borderless digital currency.

The importance of this state stems not only from the technological innovation and economic advantages it provides, but above all from the kind of assurance needed to foster a tsunami of innovation from a public driven by individual interests. A technology that offers nothing revolutionary will simply fade into the pages of history. Sustaining permissionless decentralization over time, price fluctuation, new ASICs and Pool, is challenging. But providing assurance that our desired state of permissionless decentralization can be reached and maintained is the main responsibility of the inventor/founder/developers of our particular kind of open source projects.

A Robust, Antifragile System Comes First

All technical solutions come with tradeoffs. And of course you’re right: many of the technical challenges facing crypto projects have nothing to do with decentralization, while some technical challenges are a direct result of decentralization. But that’s kind of like saying that you don’t need to have a combustion engine to make a technically superior steering wheel. Or that you don’t have to deal with fuel costs if you don’t use a combustion engine in the first place. Is it true? Yes. Does it matter? No. Am I saying that decentralization is to crypto as the combustion engine was to the car? Absolutely.

There are several important reasons:

1. The role it plays in creating real loyalty over time by participants. Decentralisation is not about what developers like or dislike — it’s about what the citizen needs. The most striking advantages of decentralization, when compared to centralized systems, come to light when considering them dynamically, as processes, instead of statically, as rigid products. This was best explained by Chris Dixon:
2. “Centralized systems start out fully baked, but only get better at the rate at which employees at the sponsoring company improve them. Decentralized systems start out half-baked but, under the right conditions, grow exponentially as they attract new contributors.”
3. In cryptonetworks, for example, there are multiple, positive feedback loops involving developers of the core protocol, developers of complementary cryptonetworks, developers of third party applications, and service providers who operate the network. This is in contrast to top-down systems, which over time grow blind to the real material circumstances and constraints of daily life. Which brings me to my next point.
4. The moment a system becomes highly centralized, a countdown begins. This is the countdown towards its devolution into a shambling, unwieldy behemoth that will inevitably lose any edge that it once possessed, eventually succumbing to irrelevancy.
5. In a corporate setting, the system is doomed by two main drivers: shareholder-oriented management and the problem of limited knowledge. Shareholders and consumers have very different priorities, so appeasing the former by maximizing short-term profits will inevitably alienate the latter, leading to a loss of profits over the long term as users lose trust. Then, when it becomes clear that a paradigm shift is necessary in order to prevent total collapse, any actions taken to reform the system from the top-down will run into the problem of limited knowledge. Even a highly talented and well-meaning centralized leadership is constrained by the scope of their knowledge. This gives all centralized projects a baked-in expiration date, where a system’s shelf-life decreases as the rate of global innovation increases.
6. In the context of centralized governments, this takes the form of prioritizing short-term economic growth and stability over all else, exemplified by bailouts and money printing. This too erodes the public trust.
7. Centralized systems are highly fragile, and easily disrupted by Black Swan events like, say, global pandemics. Censorship resistance is really just one type of antifragility. Trust is another type.
8. And yes, antifragility comes with tradeoffs. Monoculture farming is more efficient in the short term because the genetic similarity of all the crops means tending to them is an exercise in repetitive uniformity — an illusory stability favored by centralized systems due to its apparent predictability. But, over the long term, this creates crops that are vulnerable to diseases and rapid shifts in the climate: Black Swan events that are all but inevitable, but impossible to predict. The farmer who ensures genetic diversity in his crops will certainly pay the price in short-term profits, but his approach will reap dividends during the next plague.
9. What makes crypto so unique is its ability to capitalize on the antifragility generated by decentralization while offsetting at least some of its drawbacks.

If You Build It, and It Actually Works, They Will Come

Perhaps you’re right that decentralization is not an especially marketable property of crypto. But only insofar as the general public has never particularly cared about the inner workings of the technologies that impact their lives. They care mainly about utility. What I’m arguing here is that the utility of crypto is inexorably linked to its nature as a decentralized system.

You say that our main goals should be innovating and building better infrastructure for the digital economy. I agree that this is important. But we must never lose sight of the fact that enabling decentralization on an unprecedented scale is, in fact, our main innovation. The very foundation upon which all other innovations worth the label are built.

Are crypto projects that fail to live up to the ideal of decentralization guilty of some kind of moral failing? Of course not. But looking at decentralization as a pragmatic necessity that can be reverse-engineered from a ‘market fit’ is not the correct approach to crypto. Decentralization must be the starting point from which all our efforts flow.

Sincerely,

Tomer

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