BTC is Decentralized? and DAOs, DACs, DAs complete guide 2020
I’ve moved on to other things. — Satoshi Nakamoto, April 23rd, 2011 (1BTC = $1).
One of the key features of a cryptocurrency is its decentralization. Before now all financial assets were controlled by a single authority,Now, we have the technology that allows everyone to perform any operations with financial assets without any barriers and intermediaries. This characteristic has drawn the attention of many “powerful” people. It is a brilliant idea to have assets that central bank cannot control, isn’t it?
What is the most decentralized cryptocurrency now?
Cornell University Emin Gun Sirer and team have been conducting a longitudinal study of the state of cryptocurrency networks, including Bitcoin and Ethereum.
Bitcoin nodes generally have higher bandwidth allocated to them than Ethereum. Compared to our previous study in 2016, we see that the median bandwidth for a Bitcoin node has increased by a factor of 1.7x. The typical Bitcoin node has much more bandwidth available to it than it did before.
Higher allocated bandwidth indicates that the maximum blocksize can be increased without impacting orphan rates, which in turn affect decentralization. If people were happy about the level of decentralization in 2016, they should be able to increase the block size by 1.7x to clear almost twice as many transactions per second while maintaining the same level of decentralization.
Some people argue that increasing the maximum block size would also prohibitively increase CPU and disk requirements. Yet these costs were trivial in the first place, especially compared to today’s transaction fees, and have come down drastically. For instance, a 1TB disk cost $85 on average in 2016 and $70 in 2017 .
To date, we have seen no sound, quantitative arguments for any specific value of the maximum block size in Bitcoin. Arguments on this topic have consisted of vague, technical-sounding-yet-technically-unjustified argumentation, bereft of scientific justification. The dissonance between the technical-soundiness of the arguments and the actual technical facts on the ground is disconcerting for a technological endeavor .
Compared to Ethereum, Bitcoin nodes tend to be more clustered together, both in terms of network latency as well as geographically. Put another way, there are more Ethereum nodes, and they are better spread out around the world. That indicates that the full node distribution for Ethereum is much more decentralized.
Part of the reason for this is that a much higher percentage of Bitcoin nodes reside in datacenters. Specifically, only 28% of Ethereum nodes can be positively identified to be in datacenters, while the same number for Bitcoin is 56%.
Nodes that reside in datacenters may indicate an increased level of corporatization. They may also be a symptom of nodes deployed to skew node counts for various different implementations (a.k.a. part of Sybil attacks to influence public opinion), a hypothesis that was floated extensively during the course of our study.
In contrast, Ethereum nodes tend to be located on a wider variety of autonomous systems.
The terms ‘decentralized’ and ‘distributed’ are often used when talking about blockchains — and often confused, for the difference is not always obvious.
Bitcoin’s blockchain protocol, for instance, is a decentralized system for exchanging digital cash — but it’s also an example of distributed ledger technology. What’s going on?
Centralization and decentralization refer to levels of control.
In a centralized system, control is exerted by just one entity (a person or an enterprise, for example). In a decentralized system, there is no single controlling entity. Instead, control is shared among several independent entities.
Distribution refers to differences of location.
In a non-distributed (or co-located) system, all the parts of the system are in the same physical location. In a distributed system, parts of the system exist in separate locations.
Ethereum has a much higher uncle rate than Bitcoin’s pruned block rate. This is by design, as Ethereum operates its network closer to its physical limits and achieves higher throughput. As a result, however, less of Ethereum’s hash power goes towards sequencing transactions than Bitcoin’s. Put another way, some hash power is wasted on uncles, which do not help carry out directly useful sequencing work on the chain.
Both Bitcoin and Ethereum mining are very centralized, with the top four miners in Bitcoin and the top three miners in Ethereum controlling more than 50% of the hash rate.
both Bitcoin and Ethereum are equally “not particularly decentralized.”
A decentralized application is similar to a smart contract, but different in two key ways. First of all, a decentralized application has an unbounded number of participants on all sides of the market. Second, a decentralized application need not be necessarily financial. Because of this second requirement, decentralized applications are actually some of the easiest things to write (or at least, were the easiest before generalized digital consensus platforms came along). For example, BitTorrent qualifies as a decentralized application, as do Popcorn Time, BitMessage, Tor and Maidsafe (note that Maidsafe is also itself a platform for other decentralized applications).
In general, a human organization can be defined as combination of two things: a set of property, and a protocol for a set of individuals,
The idea of a decentralized organization takes the same concept of an organization, and decentralizes it. Instead of a hierarchical structure managed by a set of humans interacting in person and controlling property via the legal system, a decentralized organization involves a set of humans interacting with each other according to a protocol specified in code, and enforced on the blockchain. A DO may or may not make use of the legal system for some protection of its physical property, but even there such usage is secondary. For example, one can take the shareholder-owned corporation above, and transplant it entirely on the blockchain; a long-running blockchain-based contract maintains a record of each individual’s holdings of their shares, and on-blockchain voting would allow the shareholders to select the positions of the board of directors and the employees. Smart property systems can also be integrated into the blockchain directly, potentially allowing DOs to control vehicles, safety deposit boxes and buildings.
We get into what is perhaps the holy grail, the thing that has the murkiest definition of all: decentralized autonomous organizations, and their corporate subclass, decentralized autonomous corporations (or, more recently, “companies”). The ideal of a decentralized autonomous organization is easy to describe: it is an entity that lives on the internet and exists autonomously, but also heavily relies on hiring individuals to perform certain tasks that the automaton itself cannot do.
Given the above, the important part of the definition is actually to focus on what a DAO is not, and what is not a DAO and is instead either a DO, a DA or an automated agent/AI. First of all, let’s consider DAs. The main difference between a DA and a DAO is that a DAO has internal capital; that is, a DAO contains some kind of internal property that is valuable in some way, and it has the ability to use that property as a mechanism for rewarding certain activities. BitTorrent has no internal property, and Bitcloud/Maidsafe-like systems have reputation but that reputation is not a saleable asset. Bitcoin and Namecoin, on the other hand, do. However, plain old DOs also have internal capital, as do autonomous agents.
DOs and DAOs are both vulnerable to collusion attacks, where (in the best case) a majority or (in worse cases) a significant percentage of a certain type of members collude to specifically direct the D*O’s activity. However, the difference is this: in a DAO collusion attacks are treated as a bug, whereas in a DO they are a feature. In a democracy, for example, the whole point is that a plurality of members choose what they like best and that solution gets executed; in Bitcoin’s on the other hand, the “default” behavior that happens when everyone acts according to individual interest without any desire for a specific outcome is the intent, and a 51% attack to favor a specific blockchain is an aberration. This appeal to social consensus is similar to the definition of a government: if a local gang starts charging a property tax to all shopowners, it may even get away with it in certain parts of the world, but no significant portion of the population will treat it as legitimate, whereas if a government starts doing the same the public response will be tilted in the other direction.
Decentralized autonomous corporations/companies are a smaller topic, because they are basically a subclass of DAOs, but they are worth mentioning. Since the main exponent of DAC as terminology is Daniel Larimer, we will borrow as a definition the point that he himself consistently promotes: a DAC pays dividends. That is, there is a concept of shares in a DAC which are purchaseable and tradeable in some fashion, and those shares potentially entitle their holders to continual receipts based on the DAC’s success. A DAO is non-profit; though you can make money in a DAO, the way to do that is by participating in its ecosystem and not by providing investment into the DAO itself. Obviously, this distinction is a murky one; all DAOs contain internal capital that can be owned, and the value of that internal capital can easily go up as the DAO becomes more powerful/popular, so a large portion of DAOs are inevitably going to be DAC-like to some extent.
The above definitions are still not close to complete; there will likely be gray areas and holes in them, and exactly what kind of automation a DO must have before it becomes a DAO is a very hard question to answer. Additionally, there is also the question of how all of these things should be built. An AI, for example, should likely exist as a network of private servers, each one running often proprietary local code, whereas a DO should be fully open source and blockchain-based. Between those two extremes, there is a large number of different paradigms to pursue. How much of the intelligence should be in the core code? Should genetic algorithms be used for updating code, or should it be futarchy or some voting or vetting mechanism based on individuals? Should membership be corporate-style, with sellable and transferable shares, or nonprofit-style, where members can vote other members in and out? Should blockchains be proof of work, proof of stake, or reputation-based? Should DAOs try to maintain balances in other currencies, or should they only reward behavior by issuing their own internal token? These are all hard problems and we have only just begun scratching the surface of them.
To conclude, there are degrees of decentralization and distribution, rather than hard divisions. How much decentralization or distribution is desirable then depends on your objectives. Hopefully with the definitions given here, you’ll be able to have a meaningful discussion on the matter and a constructive exchange of points of view.
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Published at Mon, 10 Feb 2020 04:59:47 +0000
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