Intro

Throughout history, human civilization has used centralization of authority in order to increase efficiency and maintain control over larger groups of people. In recent years, technology has allowed us for the first time in human history to manage larger groups of people, without being dependent on centralization of authority. This paper analyses various societal structures that have been used throughout history, going from very centralized towards completely distributed in recent years. This paper analyses the effects new technologies, like the internet and blockchain, have on the decentralization of our society. And finally, this paper will make an estimated guess as to where these developments might lead to in the near future and what implications this has on society and businesses.

 

 

The History of Centralization of authority

During the last thousands of years, human civilization has evolved from small groups of hunters and gatherers towards the globally connected world we live in today. Throughout history, human kind has been increasingly more able to maintain control over larger groups of people. Every time societies expanded, some form of hierarchical centralization of authority was used to maintain control over the larger population group. This is necessary as humans are by nature chaotic beings which tend to compete with each other and make decisions based on personal gains. (Bryner, 2010). In order to cooperate we need a single source of truth, a single direction we all work together towards in order to achieve things beyond our self-interest.

With centralization of authority, a single source of truth is achieved with the use of by force. In a hierarchical system, a single source of truth is determined and pushed down through the chain of command by the central authority through punishment and reward (perc, 2016).  The larger part of a population is thereby forced to work in the interest of a few.  As a result, Centralization of authority has allowed us to bring about amazing global accomplishments however, almost always at the cost of violence and human extortion (Newworldencyclopedia, sd).

The Dynasty of china

A great examples of this was the Qin dynasty, the first dynasty of Imperial China. After about 2000 years of fierce rivalry between the many different warlords in ancient china, Qin Shi Huan became the first man to unite them all and create the first empire of China around 220 BC (Bachman, 2007). In order to maintain control over such a large area, Qin Shi Huan was known for its bureaucracy and strict autocratic control

The Qin sought to create a state unified by centralized political power supported by a large military and a stable economy. To increase its power, the Qin decided to undercut landowners to gain direct administrative control over peasantry, who comprised the overwhelming majority of the population. This centralization of authority allowed for ambitious projects involving hundreds of thousands of peasants and convicts. The greatest example of such projects was connecting the walls along the northern border, eventually developing into the great wall of China (Beck, 2003).

Centralization throughout history

There are many more examples throughout history of humans centralizing their control to increase the range of influence in order to achieve large accomplishments at the cost of human extortion. The Egyptian societies, The roman empire, almost all religions, Hitler, Napoleon, just to name a few. However, as we develop ourselves more as a society, we developed more efficient ways of communicating and spreading information. New ways of communication and more sophisticated societal structures allowed for large scale power centralization to work, with the use of increasingly less force.

Around the end of the 20th century, our whole world became completely centralized with very little need for violent enforcement. Rather than using force, power and authority is maintained through centralization of information, centralization of money and centralization of institutions through global trade agreements and pacts. As such, our information came directly from a few centralized senders. Our choices for attaining information was between a newspaper, tv and radio, which where all controlled by a view large organizations.

With the rising American hegemony, also global superpowers became increasingly centralized as everything was brought to us by the USA. We formed global pacts like NATO, OPEC, NAFTA and EU with centralized control over increasingly larger areas (Kirk, 2017). On top of that, our global economy got tied together with the use of central banks, IMF and the world bank. This allowed us to endebt nations and manipulate their currency supply to further increase centralized control. Also, our organizations became increasingly centralized. Centralization and vertical integration allowed large corporations to maintain control over larger geographical areas while maintaining their efficiency (Lintern, 20017).

The internet: The beginning of decentralization of authority

With the adoption of the internet, we saw the first real signs of decentralization. Humans were for the first time empowered to spread and share information directly to each other. Instead of only receiving information, we are now able to create and share our own information and get our information from anyone we follow online. Our news and media no longer come from a few centralized sources, but from an aggregation of thousands of different websites, apps and social media influencers.

It is not just our information that got decentralized through the internet. Various platforms emerged which allowed us to share and capitalize on the unused assets of each other. Through platforms like AirBnB and Uber we no longer rely on large corporations to give us access to overnight stays and transportation. By connecting directly to each other we can have access to anything we want often for a much lower cost. This together with all the new technologies, allows the average person to accomplish much more on its own, while being less dependent on organizations (Sundararajan, 2016)

Implications of the decentralization through the internet

The internet has widened our economic reach to a global scale. Together with our increasingly more efficient global infrastructures (World trade Organization, 2008) this allows us to do international business at a fraction of the cost. This radical international connectedness gives most people access to almost the same levels of efficiency and economies of scale. Everyone can order the same products on Alibaba and eBay. In this new economy, competitive advantage therefore isn’t derived from economies of scale, but rather from being the most dynamic and connected (Andrew McAfee, 2012).

This massive global connectivity also causes our business landscape to change at an increasingly faster rate (Matai, 2011). With the rise of disruptive technologies, it has become increasingly less certain whether what works today still works tomorrow. This uncertainty demands a completely different set of skills organizations (Satell, 2013). The extremely high level of uncertainty eradicates the need for strict control and long-term planning. In order to keep up, companies must iterate rapidly and make fast decisions (Ries, 2011).

The rigid old hierarchical structures don’t facilitate these new demands which is why many organizations have adopted a flat decentralized company structure with higher levels of autonomy for the workforce (Martins, 2002). Within a flat company structure, the presence of a strong vision is more important as it provides a single source of truth necessary for the system to function well. Everyone knows the goals and purpose of the organization, allowing them to maintain the same direction while making autonomous independent decisions (Laloux, 2014). As such. Decision making becomes distributed and when conflicts arise, consensus is achieved through open discussion (semler, 2010).

 

 

Figure 1  (Laloux, 2014)

A decentralized single source of truth

Online platforms are less centralized than our past organizational structures as they connect people directly with each other and delegate certain powers away from the central authority (Merriam webster, sd). They therefore don’t have a central authority to determine and push down a single source of truth. However, as all communication still flows through a central point, platforms still contain strong elements of centralization.

This is because in a regular database, there is always one central party who owns and controls the data. This owner can determine what happens with the data stored on the servers and what information people see when accessing the servers. This means that users of a platform have to trust owner of the platform to 1) manage and safeguard their data discretely and 2) provide all users of the platform with honest and correct information. In recent years, this has increasingly proven to be an issue for many users as there have been many cases of platforms misusing their position.

On such example is Facebook. As most of us know, all the data we create about ourselves and our friends on Facebook is being stored, extensively analysed and systematically sold to the highest bidder (Lomas, 2018). But, perhaps much more frightening is that Facebook also has the full control to decide who gets to see which information (Theguardian, 2018). They own and manipulate both the upstream and the downstream communication of the system. In fakebooks’ case, this power now allows them influence people to the point that they could manipulate elections (TheGuardian, 2016). One could therefore argue that the internet has in fact ultimately led to more centralization of authority:

 

Figure 3: (Thomson, 2015)

Blockchain technology

Blockchain can solve this trust issue by distributing the database among all participants of a network, eliminating the need for one central authority to oversee and control the database (see figure 3). Because blockchain is replicated and synchronized on every computer, it is also open and accessible for all participants. These synchronized computers are mostly referred to as nodes in the blockchain network. Additionally, blockchains are immutable, once data is stored it can never be removed.

Because the data is replicated many times, it needs to be small, mostly taking the form of transactions or interactions between nodes on a network. The database is therefore often referred to as a distributed ‘list’, ‘ledger’ of ‘transactions.’ In the case of Bitcoin, the database is used to store and synchronize money transactions between all the nodes in the network. However, blockchain technology holds much broader possibilities. Blockchains can be used to store any type of online transactions or interactions. Deloitte defines blockchain as “a distributed ledger that provides a way for information to be recorded and shared by a community. In this community, each member maintains his own copy of the information, and all members must validate any updates collectively.” (Deloitte, 2017).

 

 Centralized versus decentralized systems (Woodhead, 2017)

A distributed single source of truth

When someone makes a transaction on the blockchain, the transaction gets uploaded from a node to the global pool of transactions. In order to make sure everybody keeps the same list of transactions, a consensus algorithm elects some sort of leader to bundle these transactions into blocks and upload them to the network (Federico & Zarko, 2018). All nodes in a blockchain verify these latest added transactions on a set of criteria and then copy the latest state of the ledger to their blockchain (Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System, 2008). Therefore, within distributed systems, the single source of truth is validated and kept by all the participants of the network.

 

Figuur 2 (Wallstreettechnologist, 2015)

Smart contracts

Introduced by Vitalik Buterin is the concept of smart contracts (butterin, 2015). With the introduction of smart contracts, not only transactional information, but also logical rules can be added to the blockchain. Smart contracts are made up of computer code that automatically executes certain actions based on a set of criteria (Peters, 2016). Once a smart contract is created, just like any transaction in the blockchain, it can never be removed or altered. This means it will only be executed when the criteria are met. Smart contracts are public, which means everybody can verify that they do as advertised.

Blockchain implications on society and business

Through a combination of blockchain, smart contracts and other new encryption technologies, our future societal structures and communication could become completely distributed. Introduced by M. Greiner and H. Wang is the concept of trust free systems. Within trust free systems, blockchain’s capability to create an immutable, consensually agreed and publicly available record of transactions is utilized to mitigate trust issues in online platforms. Smart contracts allow contractual agreements and dApp functionality to happen automatically without possible interference of third parties. This way, trusting third parties is considered to be obsolete by design of the platform (Greiner & Wang, 2015). When combining many smart contracts, one even has the possibility to create a completely autonomous applications or even a complete organization that runs without any need human interference.

Decentralized online platforms

Instead of relying on a central authority to hold and safeguard our data, every person’s private data can be stored on distributed file storage platform, so they maintain full control over who can see which information (Storj, 2016). If companies want to use people’s data, they now have to pay them directly per unit of data it is willing to share (HARA token, 2018). With the use of “zero-knowledge proofs, users can stay anonymous to the degree they wish, without losing credibility or imposing counter party risks (Hackernoon, 2017).

Transparent supply chain traceability

For traceability to work supply chain actors need to be willing to share and have consensus on information regarding their supply chain transactions (Bosana, 2013). Because competing interests and lack of trust it is therefore often difficult to trace products throughout the supply chain. Blockchain provides opportunities to overcome these challenges and achieve consensus on every transaction between supply chain actors without the need of a third party. As consensus regarding the transactions are immutable and transparent for anyone to see, blockchain can increase trust and transparency for any stakeholder in a supply chains.

Automated trade & finance

In an extensive report by The World Trade Organization titled “Can Blockchain Revolutionize International Trade?”, WTO identifies a wide array of platforms that—according WTO— “leverage blockchain technology and smart contracts to streamline financial flows between buyers, sellers and financiers, and enhance the security, speed, transparency and reliability of supply chain financing” (WTO, 2018) These findings are confirmed by recent studies which demonstrate that blockchain can indeed deliver substantial benefits for all parties involved in financing, by expediting the process and lowering the overall cost of financing programs (Hoffman, Strewe, & Bosia, 2018).

Financial inclusion and income inequality

One of the main promises of blockchain technology is its ability to bring inclusion to the world’s poorest who do not have access to for example financial services. By the latest measurements, there are still 1.7 billion people without an account at a formal financial institution (The World Bank, 2017)The unbanked do not have access to insurance, asset registry or even credible means of identification, leaving them more vulnerable to social, economic or environmental disasters (The World Bank, 2017). The lack of land tenure and formal property titles makes it very difficult for them to use their land as collateral when attempting to access loan capital (FAO, 2015).

With the fast adoption of mobile phones, many of the world’s unbanked can get access to financial services through blockchain technology. Once they are identified and connected to a blockchain address they can build up an immutable track record for trust, providing them with access to identity, affordable loans, financial services and insurances (Worldbank, 2016). It is therefore expected that the worlds poorest can benefit the most from blockchain technology as it provides them with direct solutions to gain the trust needed to participate in the global economy (HARA token, 2018), without depending on third parties like banks and governments. Furthermore, due to the potential disintermediation of authorities and democratization of power blockchain, value within distributed systems is expected to be more equally divided among all participants, potentially reducing the global income inequality (Berggruen, 2018)

Conclusion

Centralization of authority is an age-old phenomenon which has been shaping our society in various ways throughout history. During the last century, the Internet and later blockchain technology provides people with the guidance, direction and trust needed to cooperate on a larger scale, without depending on a central authority. The decentralization of our society through the internet has impacted businesses and society in ways previously unthinkable. We are now at the start of a new evolution that is taking place which is also expected to have radical implications on our society in ways we can’t foresee at the moment. However, with the potential implications currently foreseen, one can conclude that these developments are a good thing they are expected to bring the power in the hands of a view back to the hands of the many. The tools for a decentralized and free society are here, it is now up to us whether the evolution will take place.

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