Why Decentralization

DAOs aspire to be decentralized, meaning they are governed by their members...

DAOs aspire to be decentralized, meaning they are governed by their members, without a CEO or board of directors. But is decentralization always a noble ideal worth aspiring to in the first place? The co-founder of the decentralized cryptocurrency Ethereum, Vitalik Buterin, proposes that “small things being centralized is great, extremely large things being centralized is terrifying.” Following this framework, startups should start out centralized and move fast without needing to reach consensus for minor decisions. There should be no red tape in the early days and a small team should be free to build. Things like currencies, nations, and valuable infrastructure, however, should be decentralized to protect a large foundational system from volatility and abuses of power. In many systems, from countries to DAOs, we see an oscillation between centralized and decentralized institutions. For example, the internet started as a decentralized patchwork of independent websites, on top of which a few large tech companies built large centralized services. A few big banks that control the financial system inspired Bitcoin to emerge and decentralize money. This is a natural cycle, where in periods of centralization, innovators capture value for themselves and invent new technology while aspiring to create powerful near-monopolies, and in periods of decentralization, open source contributors, governments, and businesses offer decentralized alternatives that return power to individuals.

A common project lifecycle is to start agile and centralized, build out a product, and then decentralize the product or infrastructure to a wider group of stakeholders once the product is working well. In the early stages, the main goal is to move fast with a small team and find product-market fit. This team may need to pivot and make tough choices, and should not need community sign-off at every step of the way. Steering the ship is easier when it's lighter, before more people come aboard. After finding product-market fit, the project will start to operate an important piece of internet infrastructure, and the efficiency gains of centralization won't outweigh the potential damage that could be done to the system by one powerful person. Decentralizing can increase trust in the protocol and provide assurances that it's not disappearing tomorrow at the whim of one person. By itself, decentralization is not good or bad; it's a tool that can help to build more robust, democratic systems. When more people are involved, things move more slowly, but they are less prone to abuses of power and sudden implosion.

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