1 min read

Centralization is... good?

When it comes to government, a lack of centralization makes it so nothing good can get done. Laws can't be passed. Laws can't be enforced if the police don't have enough power. Any effort to fix the situation will meet too much resistance because the power is too distributed. This is the situation in Somalia.

I'm currently reading the book Why Nations Fail. It's a fascinating look at the economic and political forces that cause some countries to grow and thrive while others collapse. The authors make the distinction between extractive and inclusive political and economic structures. These terms are easiest to explain with a quick matrix:

A certain amount of centralization is needed to create economically and politically inclusive institutions. However, too much centralization of power is just absolutism and will always fall into extractive institutions that benefit the elite most.

Blockchain is interesting because it's decentralized without giving up the needed centralization for inclusive systems. This is because the rules of blockchain are centralized. All "citizens" have to abide by the same rules. But the opportunities and voting power are decentralized to everyone.

The biggest risk to losing these inclusive institutions is the fact that you can buy more voting power. Countries give one vote to each individual, but blockchains tend to give one vote to each "dollar" (hash power, token, etc. – all of which are economic influence). The saving grace is that using your power to create extractive rules that only benefit you and your friends would quickly erode the value of your investment. The small and mid-size investors won't stand for that.

In order to keep blockchains inclusive, that cultural norm must be maintained and codified. Especially as more and more people are brought in and given voting power.


P.S. KAP is launching on April 19th! Kui and I will be publishing a podcast soon with everything you need to know. Stay tuned.