The Goal of Decentralization

The goal of decentralizing the operating structure of a digital consumer network that uses a common digital product is to reduce the burdens of centralization and maximize the utility of the product's user base.

Consider the working example the sports betting operator which has centralized control over how the product operates.

  • Sports betting operators are under extreme financial burdens due to tax, over-regulation, C-level salaries, shareholder extraction and data costs

  • Due to the burdens, the operator must restrict a user who is sophiticated from making bets by either limiting their use case (amount bet) or banning them entirely from the digital network

  • The sophisticated user must now generate hundreds of concurrent accounts to profit

  • The operator must now spend much more money to detect and ban accounts

  • The increased cost of this cat and mouse game is passed to the retail customer who now endures higher margins on betting entertainment

If the data companies, regulators and C-suite executives relaxed their profit taking or did not exist, the operator might be able to decrease margins and generate much more volume. Consider the case of a decentralized sports betting operator.

  • An autonomous protocol on a blockchain has no profit taking exectuives, cares little for needless regulation and ingests data with open source software developed by users in the digital network.

  • Due to decreased cost burdens, restrictions can be lifted on sophisticated bettors, allowing them some leeway in making bets and expanding their use case.

  • Banning a user is impossible and instead the software informs itself from open information.

  • Sophisticated users can just bet and not worry about account making

  • By inviting better data into the distributed ledger, it can be used publically and make the line more efficient which allows for lower margin on betting entertainment.

In this case, dencentralization leads to a much better result for the utility of all users because there is no profit taking happening via a greedy centralized entity that offers little benefit to the end user. The sophisticated bettor can relax and there are fewer costs passed on to retail bettors.

Caveat Emptor

Although this example is simplistic, it demonstrates how decentralized thinking can lead to optimal results for the end users of any digital network. In reality our example might miss obvious considerations like:

  • A innovative and benefial CEO might generate new products that produce new utility that a DAO may not be able to develop quickly

  • Sophisticated bettors might find a loophole in a fully automated system that gets exploited and a quick decision is much easier in a centalized entity

The reality of decentralization is that there are tradeoffs in adopting a collective management structure and the business problem being solved is better thought of as a constrained optimization problem where the variable to optimize is the utility of the customer in the digital network.

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