System Design: Centralization vs. Decentralization
In centralized system, energy costs are borne by the existing system. The system itself must scale to accommodate new nodes.
In a decentralized system, energy costs are borne by the nodes. Each node has “skin in the game.”
In order to grow, centralized systems must add functionality along all vectors.
This process requires significant energy costs in the form of development, administration, and in many cases, compliance.
Decentralized systems can grow simply by adding a node.
In centralized systems, the system itself is responsible for everything.
Because of this, attacks on one part of the system can threaten the stability of the entire thing.
Here’s where things get interesting:
Given their high energy costs, Centralized systems must keep adding nodes (as this is how they gain energy).
But in order to address fragility, resources must be re-allocated toward redundancy and security.
This means centralized systems must pull resources AWAY from growth—the sole means of survival—in order to address fragility.
If fragility goes unaddressed, the system will eventually be taken down by external threats.
So a balancing act is necessary.
(Central bank, anyone?)
Addressing fragility is also known as HARDENING.
But hardening can only happen downstream from growth.
And because growth is necessary to keep a centralized system alive, hardening can only occur on a time scale that lags behind growth.
This dynamic GUARANTEES all centralized systems carry a certain amount of fragility related to their current size and rate of growth.
And because resources are finite, decision-makers in centralized systems must engage in COMPROMISE—x% for growth, y% for hardening.
This creates a RESOURCE DEFICIT in all centralized systems.
Fragility within these systems is guaranteed by TIME LAG (hardening must follow growth) and RESOURCE DEFICITS (never enough to harden completely).
And this means centralized systems can NEVER be secure.
In decentralized systems, individual nodes face specific risks, but they can still protect themselves against those risks.
In centralized systems, nodes are protected from many specific risks, but they are vulnerable to system-level attacks—against which they have no defense.
As they increase in size, centralized systems LOSE agility—the ability to adapt quickly to changes.
Even trivial adjustments can become impossible obstacles in a centralized system of sufficient size.
Decentralized systems, however, GAIN agility as the number of nodes increases.
Nodes can independently—and spontaneously—adjust to changing conditions. Other nodes may or may not follow suit.
This is called EMERGENT ORDER.
No limit to the possibilities!
On a long enough timeline, decentralized systems have unlimited potential, and centralized systems are guaranteed to fail.
Why, then, is the default—for human systems generally and big business specifically—centralization?
1. Control over nodes
2. Reduction of competition
As we’ve seen, the complexity of centralized systems creates vulnerabilities…
But it also offers a benefit in the form of REDUCED COMPETITION. (Complexity increases startup costs for other players.)
A large centralized system is unlikely to be taken down by a competitor.
So what ARE the biggest threats to centralized systems?
• Rogue agents
• “Bank runs” of dissatisfied nodes
Emergent orders are CRITICAL tools for the survival of any system over time.
Without them, failure is guaranteed.
Centralized systems lose the ability to produce emergent orders as they scale.
Meanwhile, decentralized systems become MORE AGILE as they grow!
Decentralized systems are superior over time, but humans keep building centralized systems. Why?
• Control over nodes
• Consolidation of resources (the borg profits)
An economy based on a fiat currency guarantees centralized systems will be “chosen” over decentralized ones.