Decentralisation is not a new concept. It has been used in strategy, management and the government for a long time. The word decentralisation came into usage in the mid-1800s. Tocqueville would write that the French Revolution began with “a push towards decentralisation” which ultimately resulted in “an extension of centralisation.”

Notions and visions espousing techno­logy-driven decentralisation and the accompanying democratisation of socio-economical structures circulated with increasing ubiquity, from the Californian counterculture of the 1960s and 1970s, particularly in the German-speaking countries, where, given the influence of Bertolt Brecht’s radio theory and Hans-Magnus Enzensberger’s ‘Constituents of a Theory of the Media’, they were linked to the then new media.

The inception of videocassette system, where individuals could record, share and listen to media they choose, at that time where public broadcasting by the State dictated what media could be consumed, heralded the end of the classic mass media and the advent of novel options for the public “to participate directly in essential decisions”.

The promise of decentralisation emerged again with the internet and digi­tal technology. These were meant to lead us to a decentralised society along with the eradication of central roles and hopes for equality, transparency and redistribu­tion of powers in a more democratised society.

The creation of dominant players like Google, Amazon and Facebook, control and use of DNS (Domain Name System) as well as ICANNs (The Internet Corporation for Assigned Names and Num­bers) control on domain names, among other things, tainted this vision.

The inception of cloud technology also heralded a new era of decentralisation, albeit the decentralisation happened on the hardware part but not on the core control functions.

A decentralised system typically is a type of network where nodes are not dependent on a single master node; instead, control is distributed among many nodes. Decentralisation, however, may take different forms and can arise at different layers.

There is political decentralisation, which touches on the delegation of political power (e.g. who can participate in the network and in what way), authority and resources to­wards the software and platform, representative of and accountable to all the community, which should also empower them. 

Administrative decentralisation involves the delegation and transfer, from the central function to other players with certain capacities in planning and managing concrete affairs without losing its fundamental ac­countability to the central governance.

Fiscal decentralisation re­dis­­tributes resources from the central governance towards other players, like master nodes and miners, and the architectural layer of the blockchain, where, for example, you have digital assets being minted, registered and stored without any in­tended centralised intervention.

The shift to the digital economy and blockchain technology have, however, infused new hopes of decentralisation. How does blockchain and its promise of decentralisation  fit in with the above forms of decentralisation? I will not delve into an analysis on the difference between permissioned, private and hybrid blockchains, but will base my brief discussion on Bitcoin and Ethereum, which are open and permission-less and use consensus.

The promise of decentralisation emerged again with the internet and digital technology

Bitcoin and Ethereum both originate through open source projects and have features of decentralisation infused in their DNA. However, when we start looking into the different and intricate layers making up the blockchain we see a different picture.

Let’s start with the political and decision-making power. Similar to other open source projects, there is a discrepancy between those who can provide input to the project (the users at large), the miners who own the nodes and partake in the consensus, the beneficiaries who simply own the digital assets stored on the block­chain mechanism and the selected number of developers who have the power to decide based on their title and role, on any changes in the code and if these would carry a fee. 

So even though there are features of decentralisation in the architecture (made of decentralised nodes) and the user is to a certain extent sovereign, there is still centralisation at a political level.

Mining on bitcoin, having started as a pure peer-to-peer activity and totally decentralised, has also morphed into selected sophisticated mining pools becoming a centralised activity, with its own economies of scale and scope and with high barriers to entry.

While the original design of Bitcoin was aimed at a fully decentralised Bitcoin, the power of developers outside the consensus mechanism, use of SPV Nodes, negative externalities morphing mining into a cluster of sophisticated mining pools as well as events in Bitcoin community revealed the true limits of decentralisation in this system and the dominant human element and new forms of centralisation.

Ethereum also has similar traits. The Ethereum flash crash in 2017, which was triggered by a single multimillion dollar selling order, and the events that followed, as well as the infamous DAO incident, illustrates how the decentralised nature of the Ethereum blockchain did not prevent the emergence of centralisation at a higher level.

In a study conducted in March 2018 entitled ‘Decentralisation in Bitcoin and Ethereum Networks’, Adem Efe Gencer, Soumya Basu, Ittay Eyal, Robbert van Renesse and Emin Gün Sirer also reached the conclusion that  Ethereum and Bitcoin are not fully decentralised.

The study finds that Bitcoin has a higher capacity network compared to Ethereum, and is geographically more clustered than Ethereum, with many nodes likely residing in data centres. Both have fairly centralised mining processes, but in Ethereum, the block rewards have less variance than Bitcoin’s, and Ethereum has a lower mining power utilisation than Bitcoin.

Despite having potential, the block­chains cited above are not fully decentralised, nor will they achieve absolute decentralisation automatically within a short period of time. As an ecosystem grows around a blockchain- based system, we encounter terms and novelties like Decentralised Autonomous Organisations (DAO), Decentralised Autonomous Corporations (DAC), Decentralised Autonomous Applications (DAPPs) as well as Decentralised Autonomous Societies (DASs), where an entire society can function on a blockchain with the help of multiple, complex smart contracts and a combination of DAOs and DAPPs running autonomously.

This may develop with the advancement of society and imbued gradually, through complex processes, technological challenges and with the likelihood of new forms of centralisation emerging along the way. One of these new forms of centralisation will be autonomous code.

Even though imbued with functionalities of a decentralised nature like those available through Facebook or Google, and having the potential to change the fabric of our society, we need to ask: who will be in control and are we the victims of a delusional dream called decentralisation?

Ian Gauci is the managing partner at GTG Advocates and Caledo. He lectures on Legal Futures and Technology at the University of Malta.

This publication is provided for readers’ convenience and does not constitute legal advice. This publication is protected by copyright © 2019 GTG Advocates.