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· 4 min read

In Part 1 of this post, I discussed a particular example - that of decentralised Uber to decipher if a decentralised Uber makes sense, or in general is decentralistion always better?

In this post, we will explore some the theoretical basis of the argument.

Braess's Paradox​

Braess's paradox (often cited as Braess' paradox) is a proposed explanation for the situation where an alteration to a road network to improve traffic flow actually has the reverse effect and impedes traffic through it.

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You can find the complete explaination of this example here. I will just suffice to say that the total commute time from Start to End is lower if there is no link from A to B vs when there is. It would be better if a rule is laid down that only a certain number of people are allowed in the road A to B. Keeping it open to independent choices of everyone produces an outcome which is sub-optimal to everyone

Decentralisation is not a value in itself​

I recently came across a very interesting tweet by Simona Pop of Bounties Network.

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There is no inherent value in decentralization. What decentralisation enables is of value for some people or in some contexts. Does it make people more efficient? Can theynow do things which government or regulators didn't want them to? Does it give them more control of their lives? These are the questions which actually matter.

Democracy vs Dictatorship​

In context of nations, the tradeoff between democracy and dictatorship is very similar to that between decentralization and centralization.

Though nations have much broader and varied goal, compared to organizations. For example, companies have a clear metric of creating more shareholder value.

What are the metrics on which decentralised organizations should be judged? Is it the value accrued to network participants?

How much value can be assigned to network participants not getting censoured - which is one the key benefits of decentralised orgs.

Countries' metric can be GDP, GINI coefficient or the happiness level ( Bhutan actually uses this metric)

Historically, Decentralisation always emerged as a response to restrictions in centralised systems​

Here's a great post which talks about the rise of decentralization in context of mp3 file sharing. The author points that decentralization always arises in response to the law when a certain use of centralized technology is denied.

A quote from the above post which sums this beautifully

Ask yourself, what can some people not do on centralized systems which they should be able to do? If you look closely, you might be able to spot informal strategies people are using today to get around the rules, and these could help inform what to formalize into a protocol.

What do people really want?​

I think the key question is - What do people really want? Are they OK with sacrificing some privacy and freedom for better user experience and less effort.

If we try to reason with organization of states, most states have high level of centralization. US, China, Russia are some examples which come to mind. Direct democracies in comparison have been few and has only worked for fewer states.

Other advantage of centralization is that it concentrates power on the top layers. These people want to increase their power - leading to more alliances, subjugation or attacks - ultimately leading for the organizations to be more powerful.

Similar dynamics can be seen in corporate orgnizations. The profit motive actually helps them become bigger and concentrate more power. This drive is lacking in decentralised organizations.

Urusula Le Guinn in her book The Dispossesed portrays this beautifully. The book talks about a society born out of anarchism, an extreme form of decentralization. These people establish a society from ground up in a new planet. What was interesting was that even in this anarchist society points of centralization emerged. For example, people were given names by a centralised computer systems. Important people controlled means of production and media. The book is a great portrayal of the dichotomy between centralization and decentralization.

The emergence of miner centralization, high level of control by developers, etc. point to this phenomenon in current crypto ecosytem. It emerges primarily for better coordination and efficiency.

This begs the question:

Isn't the inherent tendency for people to strive for power a deterrent against decentralization? And what has fundamentally changed in the last few years which would tilt the balance towards decentralization?

· 8 min read

I often find myself discussing with friends about decentralization and its benefits. Somehow people believe that decentralization is inherently good. Most of us have a meme of evil corp in our mind - and anything which gives us hope of taking down these evil corps seems quite appealing. Most of us hate how these evil corps like Google, FB, Uber, etc. make a huge profit - and potentially by selling our data/time as their key offering.

So something which can bring down these evil corps is good, right?

Well, the point is that good and bad are just moral standpoints, and society ultimately rewards efficiency.

The general argument is that a decentralised organization needs much less administrative cost as people are aligned based on the incentive structure. So, less number of employees for marketing, administration, etc. and hence lower cost in employee expenses. Also, decentralised orgs don't have a profit motive, so all the value created is distributed in the network.

All this is fine, but we need to ask what are we losing when we remove all these people who essentially help in coordination? Let's examine in more detail.

Let's take the example of Uber.

  • The Ops people in Uber ensure that there are enough driver partners on board before launching in a city.

  • The Marketing people make customers aware that Uber is getting launched in a city. When Uber is already launched in a city, they keep running campaigns to keep Uber at the top of the mind of people, so that they book an Uber whenever the need a cab.

  • The Customer Success team responds to customer queries and complains. If someone was wrongly charged or they lost something in the Uber, they can dial up customer care to register their issue. These people then follow up on that complain to ensure that it is resolved.

  • Support for driver partners ensures that they are well trained on etiquettes, traffic rules, etc. so that a minimum standard is maintained when someone starts driving in the Uber network.

  • Folks in legal and regulatory department handle any issues which regulatory agencies may have. They communicate with the govt. and policy-making bodies to apprise them of their business and the value it can bring to the people.

  • Product people and developers develop and maintain quality mobile apps which work in different network conditions, phone type, etc.

So, apart from the customers and drivers, there are many types of people which form a marketplace company like Uber.

Now, let's see how will these functions work for a decentralised version of Uber - dUber (in lines of dApp)

For simplicity, dUber issues a dUber ERC20 token (The primary construct will remain similar if it's a native cryptocurrency, the gas cost will be replaced by miner fees, or something similar)

So, to bootstrap the network - dUber premines dUber token and issues some in ICO to raise initial funding.

A part of the funding is used to pay developers to get the product made and released - of course in open source. The ICO is run by a team which would say be a foundation with some dUber tokens. They are paid partly in dUber token so the incentives are aligned.

Marketing - For marketing, suppose dUber air drops the tokens to customers. These effectively act as initial free use cards which even traditional startups use.

But wait, who will ensure that there is enough number of cars on the street on dUber? So, somebody needs to introduce this dUber app to the drivers. They can't be just expected to start taking rides through dUber. They need to be handheld.

Ok, so let's say we have a smaaalll team to do ops before launching in a city.

Fine. But still much better than the evil Uber, right?

Wait. What if a rider is charged wrongly for a ride? Or what if he accidentally forgets phone in the car? Who should he call in dUber? Remember, there is no company running it.

Hmm.. maybe we will have few people in call centers to address such queries. But if its a decentralised dUber, will they have a database of which car was last used by this customer? I doubt so. What to do then? Well may be read it from the payment history in the Ethreum blockchain. After all, the driver would have been paid in dUber tokens.

Ok. We can do that. But does the call center guy have the phone number of the driver? Why should dUber maintain a database of phone numbers of drivers? May be it does need to?

Or just warn the riders that you are solely responsible for your belongings. And if you forget anything, dUber can't do anything. After all, we are a decentralised org, for christ's shake.

I wonder how many people will then ride on dUber.

(As a side note : This is exactly what happens when you story crypto tokens in your wallet. You are scared shitless by the wallets that they won't be able to do anything if you lose your private key. This is drilled in your mind again and again. The fact that some people still go through them, is either a miracle or a testimony of what people can do when they are promised riches.)

dUber can decide to have phone numbers of the drivers. But, who ensures that criminals don't start driving on dUber? Well, they need to be vetted by someone. Someone needs to see their ID and work history, and only after that, they can start working as a driver. All these processes need people. Somebody who can be held accountable and punished if needed.

Of course, you can say that this can be done through reputation systems where multiple oracles can push data about the reliability of the driver. But again, running these reputation systems cost money - the oracles need to be incentivised in the right way. Also, there is always a danger of collusion.

I am not saying that a decentralised Uber is not possible. Of course, it is possible. I am only questioning if it would be more efficient than the centralised Uber. Once we start providing services and facilities which are available in today's centralised version of Uber, will the decentralised version turn out to be costlier?

If it's costlier, what is the new feature we are gaining out of it, by running Uber in a decentralised way. For the case of money, e.g. Bitcoin, Bitcoin has a very unique property which none of the fiat currencies can provide. It is censorship resistant. No government can control it. It is really owned by the person having the private key. As a by-product, it is also free from the whims of central bankers who can start printing money and devalue the currency whenever they want.

So, what unique features does a decentralised Uber provides?

In economic theory, there is a concept of the Theory of the Firm. One of the key questions in it is that of why do firms emerge? Why are not all transactions in the economy mediated over the market?

One of the best frameworks to analyse this is the transaction cost theory. According to Ronald Coase, people begin to organise their production in firms when the transaction cost of coordinating production through the market exchange, given imperfect information, is greater than within the firm.

This is what Wikipedia has to say about this.

For Coase the main reason to establish a firm is to avoid some of the transaction costs of using the price mechanism. These include discovering relevant prices (which can be reduced but not eliminated by purchasing this information through specialists), as well as the costs of negotiating and writing enforceable contracts for each transaction (which can be large if there is uncertainty).

Moreover, contracts in an uncertain world will necessarily be incomplete and have to be frequently re-negotiated. The costs of haggling about division of surplus, particularly if there is asymmetric information and asset specificity, may be considerable.

So, there a reason why firms do exist, and the primary way they are structured today is in hierarchical structures. The decentralised world in which we think individuals can act as rational actors in a market increases the coordination and transaction costs.

This post has already been longer than expected, so I will conclude Part 1 here.

In part 2, I get into the theoretical underpinnings of decentralisation and centralisation and discuss reasons why centralization may naturally emerge.

· 4 min read

One of the biggest hurdle in crypto reaching to mass audience is the importance of private key management and how the loss of private key can lead you to losing your crypto wealth.

Private Key Management​

Why is private key management tough?​

Cyber security is mentally taxing. Though physical security is also mentally taxing, that’s why we have locks, frisking, etc , but we have learned to accept them and they are part of our day to day lives.

  • Fingerprint based office entry solutions
  • Frisking by guards before entering
  • Security guards in apartments

We are just not used to threat in cyber realm and don’t want the pain to secure it. This is at odds with the current practice of increasing amount of value and wealth in cyber domain. Most of us spend large number of waking hours in the cyber space - working on laptops, talking on mobile, chatting, etc. Large part of our wealth currently is secured in banks/funds which we interact digitally using websites/apps. With the increasing adoption of crypto, we will now also be responsible for securing our wealth. Hence, learning about cyber security is fundamental for the times to come.

Also, as engineers and product designers we should strive to make this shift in need for cyber-security frictionless, so that more and more people can transition to this new paradigm.

Projects​

Some projects which are working in the same space:

  • Gnosis Safe
  • WalletConnect - It’s an open-source project that enables desktop Dapps to interact with mobile Wallets.
  • Shamir's Secret - Sharded private keys with friends which enables authentication only when n-out of-m keys are available

Alternative Mechanisms​

  • Project at ETHBerlin - Using private key enabled Govt ID (Estonia Govt ID) for login?
  • Proposal by Alex van de Sande - Login with ENS subdomains - Code
  • Tenzorum - Key Management protocol for decentralised web

Identity/Biometric based mechanisms​

What are the issues with tying private keys with Identity?

Software Wallets​

Hardware wallets​

  • Paper wallets
  • Crypto Steel
  • Trezor/Ledger Nano
  • Ethercards - Physical Ether gift cards

Can U2F keys be used as crypto private key hardware wallets? What are the security issues involved?

Instructive Videos​

Working Groups​

Instructive Blogs and Posts​