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The Minimal Requirement for Decentralization of Bitcoin

The Minimal Requirement for Decentralization of Bitcoin

Posted by Daniel Larimer on .

The Minimal Requirement for Decentralization of Bitcoin

Posted by Daniel Larimer on .

Decentralization is a key characteristic of all crypto-currency projects, yet it is a concept that is often loosely defined. Understanding the minimal requirements for decentralization can help us to optimize performance, minimize cost, and ultimately make the debate over who is most decentralized moot.

The reason why decentralization is important is because time and again we have all been burned by centralized entities which have unilateral power to control our fate. To determine whether or not a system is decentralized we only have to ask a simple question, “who has control?”

Under the old centralized approaches control tended to be absolute because the company maintaining the database does so in secret and can change any data at any time. At the end of the day all disputes with all businesses are judged by the socialist justice system which is ultimately controlled by the very elite we are attempting to free ourselves from.

Under the new decentralized approaches control is no longer absolute, but now has many dimensions. Users are in control of their private keys, mining pools are in control of what transactions get into blocks, and miners are in control of what mining pools to support. Under proof of stake systems, stakeholders are in control of what transactions get into blocks.

The question remains, what is it that fragmented control and divided it into more manageable parts in the first place?

Irreversible Public Record

The key ingredient to the decentralization of control is what I call an irreversible public record. It doesn’t matter what is in the record, so long as it is public and irreversible the system is as decentralized as it needs to be.

Given a set of public records and a set of predefined software for interpreting the records everyone around the world can achieve consensus on anything. The primary challenge is only agreeing on what software should be used to interpret the public record along with what set of data constitutes the public record.

What is fascinating about this is that the creation of an irreversible public record requires no knowledge of the data in the record. All that is required is for someone to broadcast and for a sufficiently large number of people to record that broadcast. A single radio station broadcasting around the world can create an irreversible record.

Sure the broadcaster could produce a fake recording and attempt to convince people that the fake was what was originally broadcast, but no one who heard the original broadcast would believe her. Who are you going to believe, me or your lying eyes?

The only challenge is what does a person do who wasn’t around to hear the live broadcast? This person must rely on their social network. Fortunately, the social network is self-reinforcing because everyone is connected to everyone through on average 6 degrees of separation. Every single business is doing business with thousands of customers who are interacting with hundreds of businesses. Attempting to deceive someone about what the “real broadcast” was would be like attempting to deceive someone about the meaning of language itself. No one can just start using words differently and expect to communicate with others.

Adding to the Public Record

While an irreversible public record is all that is necessary to establish irrefutable property rights, one challenge remains: deciding who can add to the public record. If we go back to the radio station example then the operator of the radio station gets to control what is broadcast. If they refuse to broadcast your signed statements then they can freeze your assets. This is a step up from stealing your assets and giving them to someone else, but is enough to coerce you into complying with their demands in order to regain access to your assets.

Any system that aims to be decentralized must ensure that everyone has equal opportunity to contribute to the public record without censor. In effect, everyone should have a right to broadcast provided they can cover the cost of the broadcast. It is the gatekeepers to the broadcast channel that retain veto power over changes to the public record.

Fortunately it is relatively simple to detect when a broadcaster is engaging in censorship. The person being censored merely broadcasts on an alternative channel. Word would spread quickly that the broadcaster refused to accept a message. In many ways it would be like the Streisand Effect. No attempt at censoring the official public record would go unnoticed and it would ultimately bring the censored data to everyones attention.

If the general public has already agreed to adopt a particular set of software rules for interpreting the public record, then it is comparatively simple for the public at large to agree that any and all attempts to censor the public ledger are “wrong” and fundamentally a denial of free speech. The solution is equally obvious to all, find a new custodian to be responsible for the broadcast channel.

This brings us back to consensus again. How can we all agree who should be the new “official gateway” to the public record? Fortunately, this process doesn’t need to be clean nor perfect and will happen naturally. As soon as one broadcaster starts censoring, a new broadcaster will start a combined broadcast that takes data from the official public record and adds in the censored data. Once a reliable alternative is found the public can migrate by changing which record their software looks at.

Even though the public could eventually reach a new consensus it would be costly and may not happen if people generally approve of the censorship. It is far better to design a system that makes censorship of the public record as difficult as possible.

Control over Official Broadcast Channel

Bitcoin miners and the pools they support ultimately are in control over the official broadcast channel known as the Bitcoin blockchain. If these individuals opt to exclude transactions then it is a dead end for Bitcoin because the Bitcoin consensus is that you must buy your right to broadcast with hash power. Any group with 51% of the hash power can control what gets published and prevent anyone with less than 51% from transacting.

If we want a system to have enough decentralization to protect the right of broadcast, then it must have a reliable means of dealing with those who would censor. This means maximum redundancy on the broadcast layer. One thing is certain, the cost to start a new “radio station” must be very low with few barriers to entry. This is the single biggest weak spot for proof of work. Once someone has become so specialized at the proof of work that no one else can compete, then no startups can use the same system.

In theory everyone can already broadcast at the same time, the problem is one of filtering for the sake of the receivers who are unable to receive and process everything. It is this process of filtering the available broadcasts that becomes the choke point for all systems.

Free Market Decentralization

The Internet has given us all a voice and we now live in a society where everyone can broadcast to the entire world. So long as there is competition among broadcasters the free market will drive them toward being completely free of censorship. By changing the name of the game from “producing crypto currency” to certifying a public record of arbitrary data we have also completely changed the regulatory framework that broadcasters are subject to. This makes all the difference in the world.

Each and every day we trust centralized companies such as Apple to handle billions of dollars. These large businesses perform very well for us even in the face of centralization so long as there is competition. Market forces will drive people from company to company based upon how well each company serves their needs. When it comes to public records there are no trade secrets. Anyone can copy your record and start a business competing with it. Getting paid to incorporate data into the public record is a very solid business model if you can gain the trust of the market. No one would want to risk losing that privilege.

What this means is that a centralized firm can be fully in charge of putting content into the public record and the system can still be maximally decentralized so long as a large number of people receive and record every broadcast and compare notes. Remember, this centralized firm has no say in how the public record is interpreted. In fact, it is even possible to completely blind the broadcaster to the contents of their broadcast until after it is too late to change or censor.

Impacts on Crypto-Currency Projects

What these insights tell us is that crypto-currency projects should measure their decentralization by the number of receivers of the broadcast rather than the number of producers. Once this is established as the key criteria then it is much easier to focus on other concerns such as scalability, instant transactions, and costs. Every single crypto-currency out there is producing a public record and whether they use proof of work, proof of stake, forging, or delegated proof of stake they all have a large number of people receiving the broadcasts. We can argue over the number of broadcasters, but ultimately the free market gives us an endless ability to adapt to new broadcast techniques.

Delegated Proof of Stake

The benefits of Delegated Proof of Stake are that it selects 101 trusted broadcasters which are located around the world. As long as even one of the broadcasters remains trustworthy to not censor messages, the users can elect an entire new slate of broadcasters. This system allows the network to optimize on other, more important, factors such as speed, scale, and reliability. With the addition of BitAssets which can peg a digital asset to any commodity at almost any scale, we have leveled the playing field and opened the crypto-currency market up to unlimited competition which ultimately means an unlimited number of groups of 101 broadcasters competing to serve the masses. We can safely say that no one will be able to censor BitShares and thus it is maximally decentralized.

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My name is Daniel Larimer and I am the founder of BitShares. My mission in life is to find free market solutions to secure life, liberty, and property for all.

The purpose of this blog is to help create a free society by encouraging people to join our community which is centered around Bitshares, a next generation fully decentralized crypto-currency exchange. I use Austrian Economics to engineer the economic incentives which make freedom and non-violence profitable.

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