Decentralized In Name Only (DINO) The crypto zealots have taken Satoshi’s ideas to the extreme: they believe that complete decentralization is the goal. They forget that complete decentralization is more often known as a “mess.” In nature, complete decentralization would be like colored ink squirted into a glass of water: it permeates the water, but loses all identity of its own. It would be like the bees spreading to the corners of the Earth, but never gathering to make honey. The spirit of decentralization is alive in bitcoin: there’s no bitcoin company, no bitcoin marketing team, no bitcoin central bank. The flip side is that bitcoin has a marketing problem (the world still doesn’t completely trust it), it’s not useful as money (the price is too unstable), and it’s ridiculously hard to get people to agree on upgrades. Is it possible that decentralization can be taken too far? Bitcoin shows us the answer is yes. There’s another reason that crypto projects seek decentralization: they’re harder to prosecute. If no one is in charge, then who can the U.S. Securities and Exchange Commission sue if things go wrong? This has led to a new phenomenon called “Decentralized In Name Only,” or DINO. Crypto projects will claim to be decentralized by issuing “governance tokens,” which are like shareholder votes. Because the token holders own the project, it’s decentralized! Meanwhile, the same centralized team is toiling away behind the scenes, because that’s the way good organizations work. You need a centralized team to get things done. There’s a reason we don’t have every citizen vote on every bill that goes before Congress: “direct democracy” doesn’t scale. It’s mind-numbingly boring. Instead, we hire elected representatives who we trust will study the issues and make the best vote on behalf of the citizens. (Again: both centralized and decentralized.) This is a lesson that we can easily learn from human history, but crypto projects are learning it the hard way, through “governance proposals” where the votes are dominated by the people who hold the most governance tokens. These fully decentralized systems simply create a new centralized threat. The takeaway is that too much decentralization is just as dangerous as too much centralization. Nature disrupts centralized organisms by breaking them down into smaller decentralized parts: when a system draws too much power, it explodes. When a city gets too large, people will flee for the suburbs. When a government gets too powerful, it collapses under its own weight.
Even our own bodies will one day break down and be food for worms. And life will begin anew. I love centralized systems. I think great governments provide education, health care, and infrastructure at a level we could never do ourselves. I think great companies provide products and services that make life better and easier. But I also see the dangers when these governments and companies grow too powerful. Amazon is an incredible product: I think of something I need, and it shows up on my doorstep. But I also look at Main Street in every town I drive through, and see all the "FOR LEASE" signs on the shops that Amazon has displaced. And I disagree with Satoshi, because Visa does provide a valuable service in offering to refund fraudulent purchases on our cards. It gives us the confidence to order stuff online without the fear we're going to be ripped off. That is worth paying a little extra, because that service costs money. But Visa’s business model can screw over smaller retailers, who have to bear the brunt of Visa’s service fees and are often the victim of the “chargeback.” The balance between centralization and decentralization is often tricky to get right. Enough with the philosophy. As crypto investors, we need to put this into practice. How does this inform what we buy and HODL? | 