Decentralized vs. Centralized OrganizationssteemCreated with Sketch.

in law •  8 years ago 

Hey Steem Community,

I'm a law student trying to wrap my head around blockchains, cryptocurrencies, and the many implications that these new technologies are going to pose. Not only do I find all of this incredibly fascinating on a personal level, but I feel like I work in a field (law) that will heavily feel the impact of these shifts.

I plan to use Steem as my personal research journal, and I welcome any suggestions or recommendations from you all in the community.

The first question I'm super interested in - and it's a big one - is when is it advantageous to operate an organization in a decentralized manner (i.e., open source protocol, like many crypto projects) versus a centralized manner (i.e., legally-recognized corporation, board of directors, etc.)?

From what I've read so far, decentralization gets a lot of love in the crypto community. And, ostensibly, for good reasons: more democratic corporate governance; fewer managerial missteps; quicker diffusion and adoption of ideas; the powerful motivation, strong sense of community, and opportunities for learning that come from working as a group of volunteers.

But my skeptical law student brain can't help but wondering, what are we trading off for these benefits? The traditional, centralized corporation has evolved over centuries, and while it does have its shortcomings, there are obvious benefits as well: centuries of precedent (read regulatory predictability); legal liability shields for individual managers or owners; tax benefits. I don't yet know to what degree decentralized companies offer these particular benefits.

In any case, there are spectacular examples on both sides of this puzzle (success = Bitcoin, failure = the DAO), and I'm excited to delve deeper. Please leave any recommended resources, and please don't hesitate to let me know if I should be thinking about this totally differently! Some sources that I've loved so far:

  • Ronald Coase. The Nature of the Firm.
  • Yochai Benkler. Peer Production, the Commons, and the Future of the Firm.
  • William Mougayar. The Grand Vision of a Crypto-Tech Economy (video from Steemfest).
  • Vinay Gupta. Crowdfunding on Blockchains/Ethereum (video).

Thanks!

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Excellent question and good ref with Coase! We should all be perpetual skeptics, especially when we see so many similar opinions. In the crypto community you see an overwhelming bias towards decentralization, but we surely lose some of the benefits of centralization in doing so. Realistically, there's likely some time-varying equilibrium that's different for every business model, or industry.

Centralization could foster quicker decision-making since there are fewer people making decisions; consensus has costs in that it slows things down and convincing a group of people creates an additional hurdle. Sometimes the hurdle is good in providing checks and balances, but sometimes a single decision-making ends up doing the right thing.

  ·  8 years ago (edited)

Decentralized organizations seem to be pretty good at shielding open source developers from any tax or legal liabilities at all. I applaud that; lawyers and governments may have a different opinion. I think shortcomings pop up in other areas, for example internal governance and external trust issues.

Even though I don't expect the price to drop, Bitcoin is a failed experiment if you ask me. It was designed as a math experiment and isn't equipped to handle a global currency worth billions of dollars. People like to say that there is no 'CEO of Bitcoin', but there is. He's called Wladimir van der Laan, and he's focusing on technical details but blocking the capacity improvements that users need. It's fascinating to see that Monero and Dash both have a better working governance model than Bitcoin, while Monero's model is much more informal than Dash's.

As someone who hates big corporations, I should read Coase to understand why they exist. One indication is that I trust Amazon to send me the products that I order, while I'm not so sure about a random person selling a second-hand book on the Syscoin market - even when protected by escrow and an arbiter. The DAO designed by Slock.it could in theory be trusted because everybody could read the code, but obviously the investors were not able to recognize the risks caused by this code.

I am not sure of all the trade offs versus benefits to the centralized systems we have been so used to jumping onto the great decentralized tools going on now, but I feel it is happening at a natural enough rate that systems of checks and balances are being figured out as things go on in most the tools.

The are exactly the kinds of questions that SF authors are pretty good at exploring. I plan to do a column on this stuff later next year at IGMS

http://www.intergalacticmedicineshow.com/cgi-bin/mag.cgi?do=columns&vol=randall_hayes&article=_index

and I need some good references. Thanks. I've followed, and I'll keep watching for more.