Category: Decentralization

Primer – Decentralization forms the core focus of blockchain technology and Web 3.0, yet it is a poorly defined and misunderstood concept. In this article, we shall understand decentralization and its importance in the context of blockchains.

What is decentralization?

Decentralization describes a distributed network where power and decision-making are transferred from a centralized entity to all network participants or nodes. Vitalik’s article explains the concept in-depth and highlights the existence of three separate axes of software decentralization. These axes are

• Architectural decentralization describes the number of computers connected to the network and how many it can tolerate breaking down simultaneously. The higher the number, the greater the degree of decentralization.
• Political decentralization is the degree of control an individual or organization exercises over the network’s computers. The network is centralized if a single entity controls over half of the computers.
• Logical decentralization addresses whether the system’s constituent parts could operate as independent units if the system were cut in half; is it managed and maintained as a single monolithic object or resembles an amorphous swarm.

Understanding these axes is imperative to understanding decentralization in the blockchain. Blockchains are politically and architecturally decentralized but logically centralized systems.

• Architectural decentralization – no infrastructural point of failure.
• Political decentralization – no single entity controls blockchains.
• Logical centralization – one commonly agreed state.

The architecture of blockchains is global, implying significant tolerance towards fault, attacks, and collusion. Anyone can join the network as long as the rules are complied with. It is open-source, so maintenance and integrity are shared across the entire network, and there is no single point of failure. However, logically it is centralized as it behaves like a single virtual computer with consensus on an agreed state at any given point.

Why is decentralization important?

Blockchains provide a decentralized solution based on peer-to-peer network architecture. These networks facilitate communication and transactions in a trustless manner without any central point of governance/authority. All information is publicly accessible to the network participants who are entrusted with validating the legitimacy of the data by utilizing cryptography. The arrangement ensures data is distributed among all participants (nodes) who work to achieve consensus over the current state of the ledger. The absence of centralized authority makes them maximally resistant to a single point of failure, meaning the network’s functionality remains unaffected in the event of a hacked/rogue node. Moreover, modifications and alterations aren’t possible unless the majority of the network participants agree, significantly lowering the chances of a coordinated attack or an effective manipulation.

Trustless and Empowering
A decentralized blockchain network doesn’t require network participants to trust each other. Each participant has access to the same data ensuring high levels of transparency and prohibiting malicious acts as any wrongdoing on the network is quickly exposed. If a node’s record has been altered or corrupted, it will be identified and rejected by other nodes on the network, thereby removing trust from the equation.

In addition, every node on the network has equal authority/power facilitating an empowering environment where anyone can be part of the network by simply complying with the defined rules. Unfortunately, traditional centralized systems lack an open environment for participation and collaboration, making them susceptible to collusion.

Secure and Fault-tolerant
The lack of a central authority governing and running the system and the broad distribution of participants makes decentralized blockchain networks difficult and expensive targets to attack and manipulate. Moreover, decentralized systems feature an independent setup of nodes that can communicate with one another. These connected but separate entities provide fault-tolerant properties, so even if one node breaks down or fails, the other nodes will continue to operate and not incapacitate the network.

Disintermediation
With their peer-to-peer architecture, decentralized networks eliminate reliance and interference from third parties, contributing to higher speeds and lower costs. Decentralization helps resource optimization by streamlining the operational process furnishing enhanced performance and consistency.

Limitations of Decentralization

Decentralization has numerous advantages, but one cannot overlook the practicality of its application. In the following section, we shall explore the two major limitations of decentralization.

Scalability
Scalability is a significant challenge affecting blockchain development and its widespread adoption. The extent of the problem is evident in the emergence of an entire sub-sector (Layer 2 solutions) dedicated to optimizing network performance. Unfortunately, a network’s ability to scale, defined by throughput and latency, has limits. Traditional institutions like Visa, with centralized infrastructure, can process 1700 transactions per second (TPS), whereas Bitcoin can process only 7 transactions per second. The vast difference can be attributed to blockchain networks’ utilization of excessive processing power and time to achieve decentralization. Transactions on decentralized networks must go through several steps comprising acceptance, mining, distribution, and eventually validation by a global network of nodes.

A widely held belief popularised by Vitalik Buterin, The Blockchain Trilemma highlights the three essential and organic properties of blockchain – decentralization, security, and scalability cannot perfectly co-exist, implying any network can achieve only two of the three aforementioned properties. Historically, blockchains have prioritized decentralization over the other two properties, reflected in the low transaction volumes. However, some new blockchains offer greater throughput and functionality by focusing on scalability as opposed to decentralization.

Storage
The peer-to-peer nature of decentralized networks requires every network participant to maintain a record of every transaction on their server. To be able to meet this requirement, nodes need to make provisions for heavy storage. The ever-growing storage adds to the cost of maintaining and operating the network. Additionally, this could lead to a loss of nodes if the immutable ledger’s growth surpasses the node’s ability to download and store all necessary data.

Most blockchains that run dApps on the network tend to put only the transaction data on-chain with heavy reliance on off-chain solutions and centralized storage services.

Permissioned and Permissionless Blockchains

Decentralization enables networks to deliver immutability and permissionless participation. However, this feature comes at a cost reflected in the low transaction throughput. The level of decentralization is thus an important concern that needs deliberation of other associated caveats. For example, Is decentralization the goal, or does it operate on a spectrum? Nominal or effective decentralization? Fully decentralized or Partially decentralized?

Different use cases demand different variants of the same technology leading us to the discussion of two fundamentally different blockchain models, Permissionless and Permissioned Blockchains.

Permissionless Blockchains
Anyone can join the network, access information, and participate in consensus validation. Permissionless blockchains are decentralized and open to the public and, as such, referred to as trustless or public blockchains.

Permissioned Blockchains
In contrast to permissionless blockchains, permissioned blockchains are closed networks requiring users to seek permission to participate in the network. Often referred to as private blockchains or permission sandboxes, these blockchains are partially decentralized in that the members ascertain the level of decentralization and the consensus algorithm to be deployed.

Comparison
Permissionless networks are censorship-resistant and offer high levels of transparency which proves beneficial for speed and reconciliation between unknown parties. The decentralized architecture ensures greater security and reliability as there is no central repository to hack. A major drawback associated with their use is limited scalability that stems from the need for significant computational power for network-wide transaction verification.
Permissioned networks are more efficient in comparison. They’re faster as fewer nodes manage verification and consensus. In addition, these private networks are highly customizable. However, these networks do not offer the same level of security as permissionless networks. Like traditional systems, their security is dependent on the integrity of the members and is susceptible to manipulation. Individuals with malicious intent can easily skew the network in their favor. Infiltration of such kind is difficult in the case of public networks as the bad actor would have to take over more than half of the computing or hashing power (~51%) to override the consensus mechanism.

To summarize, permissioned blockchains are private and more centralized when compared to the public and fully decentralized permissionless blockchains. Permissioned blockchains are more suited for applications that demand higher levels of privacy, such as insurance settlement, internal voting, and supply chain management. In contrast, permissionless blockchains have use cases in crowdfunding, digital asset trading, and donations.

A lot of blockchains claim decentralization, but in reality, the storage and scalability limitations have made them heavily dependent on the centralized storage services and other underlying Web2 infrastructure.

Can a blockchain be decentralized on the cloud?

Proponents of decentralization question the reliance of blockchains on centralized cloud servers. For perspective, a significant portion of the Ethereum network is hosted on AWS, a cloud service by Amazon. Let’s examine the implications of this dependence.

Blockchains are often categorized as decentralized networks that operate independently of financial institutions and corporations, but the harsh reality is that several blockchains utilize centralized cloud services for hosting. For example, more than 50% of Ethereum nodes run on the cloud, and the same is true for Solana. One could argue that node distribution eventually contributes to decentralization, but the problem is deepened by the uneven distribution of nodes worldwide.

Centralized cloud servers such as AWS, Azure, Alibaba Cloud, Google Cloud Platform, DigitalOcean, and Hetzner, host nodes of major blockchains. Theoretically, the functioning of dApps on these blockchains could halt if the clouds shut down or face an outage. A major issue today is the development of dApps through centralized services. So what explains blockchains’ overt reliance on such services?

Centralized cloud servers
With their robust data storage capabilities, centralized cloud servers have fostered a system that makes it easy for blockchains to deploy their nodes on the cloud. The setup enables blockchains to enhance their functionality and benefit from the cloud’s unlimited resources and efficient on-demand services. Clouds are the optimal choice because deploying nodes on them is cheaper, more accessible, and doesn’t require dedicated equipment/infrastructure. Still, their use has created an excessive dependency that has serious drawbacks, with the cloud’s centralized architecture of paramount concern.

First and foremost, a centralized structure implies a single point of failure. While current tools help thwart attacks, they aren’t foolproof and are therefore subject to several vulnerabilities, including hacks/breaches and internal leaks. Most dApps running on major blockchains host the front end on centralized cloud servers. These decentralized applications are built mainly on the cloud and interact with the blockchain on the backend via smart contracts. This arrangement introduces another concern with respect to data privacy and integrity as information is collected, transferred, and stored on the cloud, necessitating trust in the cloud’s services. Lastly, downtime/outage cannot be ruled out with centralized servers. Disruption in service is a serious concern that can prohibit real-time access to data.

In summary, what’s at stake is the true decentralization of the blockchain ecosystem.
In the following section, we shall discuss a Layer 1 blockchain aimed at eliminating dependence on cloud servers and re-introducing decentralization into the technology development stack to deliver a genuinely decentralized WORLD COMPUTER where dApps can run fully on-chain.

Aiming for Ultimate Decentralization – Internet Computer
Internet Computer has positioned itself as the only offering that makes it possible to build anything end-to-end on a blockchain.

What is the Internet Computer?
Internet Computer is an infinitely scalable general-purpose blockchain that delivers a decentralized Internet by running smart contracts at web speed. It permits developers to install smart contracts and dApps directly on the blockchain. It can be referred to as a sovereign decentralized network sans cloud computing services (read AWS) to deliver web content. In short, it combines the best of blockchains and decentralized cloud services.
Hosted on node machines and operated by independent parties who’re geographically separated, the internet computer nodes run on ICP (Internet Computer Protocol). ICP is a secure cryptographic protocol that ensures the security of the smart contracts running on the blockchain. The Internet Computer is a network comprising individual subnet blockchains that run parallel to each other and are connected using Chain Key cryptography. This implies canisters (smart contracts on IC) on one subnet can seamlessly call canisters hosted on different subnets of the network. Another notable feature is the network’s decentralized, permissionless governance system NNS (Network Nervous System), which runs on-chain. NNS is designed to scale the network capacity when required. It does so by spinning up new subnet blockchains.

Internet Computer is committed to providing a platform allowing developers to build and host web dApps utilizing built-in mechanisms. Their plan includes making IC a decentralized Certificate Authority and providing a decentralized Domain Name System (DNS) on the IC. IC’s rationale behind this commitment is to achieve true decentralization. Most browsers today use PKI (Public Key Infrastructure) systems that assume centralized trusted third parties to serve as roots of trust (certificate authorities).
An update that will enable IC to march closer toward its goal of decentralization includes integration with Bitcoin and Ethereum. Displacing bridges and the need for wrapping, the Internet Computer, through Chain Key cryptography, establishes a direct connection with the BTC ledger providing a trustless foundation for DeFi projects utilizing Bitcoin. It empowers developers to create canister smart contracts equipped to communicate with Bitcoin. IC plans to leverage this unique offering to Ethereum as well. In simpler words, a smart contract on IC can directly pass messages and not just tokens, between the networks. It thus enables token logic to be on Ethereum while the build front-end middleware on IC. IC’s integration with Ethereum and Bitcoin will eliminate dApps’ dependence on servers like AWS and Azure. Moreover, it will bring advanced smart contract technology onto the Bitcoin network and enable developers to benefit from the massive liquidity of the network.

Conclusion
Blockchain has extended its use cases beyond finance, changing several industries including insurance, healthcare, and gaming for the better. The reliance on Web2 infrastructure has created a massive dependence that goes against the ethos of decentralization. IC is working to be the first blockchain to bring true decentralization.

Primer: Web3 denotes a future where decentralization is built into the architecture and control is returned from tech behemoths to the rightful owners, i.e., users. The ability of blockchain to deliver on the promise of a future free of intermediaries stems from decentralization, which essentially describes a distributed network architecture enabling peer-to-peer value transfer in a transparent and coordinated manner. The technology has garnered popularity only in the financial sector so far. However, blockchains’ use case extends beyond finance and can secure the democratic process, improve healthcare services, and revolutionize supply chain management, among other social and political applications. But the realization of this potential is subject to the creation of decentralized protocols for verifying human identity.

Decentralized ID

Unlike typical identifiers (passports, driving licenses, etc.) Decentralized IDs leverage verifiable credentials (VC) and blockchain to create digital identities that users have control over and can use to log into various systems without exposing their personal data to online risks. The design eliminates dependence on intermediaries (centralized registries, identity providers, or certificate authorities) and protects against identity and data theft. In order to understand the rationale behind the creation of Decentralized IDs, it is imperative to understand the issues with centralized identity management systems.

Centralized identity management systems

In centralized identity systems, a single entity is responsible for storing all digital data. Digital data encompasses all user (individual, group, or organization) data available online, from photos and emails to physical identity information. All information is housed in siloed databases creating a single point of failure. These databases can be compromised through security breaches or centralized attacks. Thus, data tampering and loss are common, raising concerns over the integrity of the systems. The cost and complexity associated with their use prove ineffective compared to a well-implemented and verifiable decentralized protocol.

Blockchain for Decentralized Identity

Creating a trustless and transparent environment with a substantial degree of user control has resulted in a great interest in leveraging blockchain technology for decentralized identity solutions. In contrast to centralized systems, blockchains are more fault-tolerant, attack-resistant, and collusion-resistant. Blockchains provide a global, decentralized, and distributed peer-to-peer network architecture that can tolerate localized shutdowns. All information is publicly accessible to the network participants who are entrusted with validating the legitimacy of the data by utilizing cryptography. Furthermore, the arrangement ensures data is distributed among all participants (nodes) who work to achieve consensus over the current state of the ledger. The open-source nature assures maintenance and integrity of the network are shared amongst all participants. The absence of centralized authority makes blockchain maximally resistant to a single point of failure. It is tamper-proof as modifications and alterations aren’t possible unless the majority of the network participants agree, significantly lowering the chances of a coordinated attack or an effective manipulation. Blockchain’s functionality as an immutable digital ledger helps address some of the major shortcomings associated with using centralized identity systems, namely, inaccessibility, insecurity, and fraud.

In today’s data-driven environment, digital identity is essential and must be protected against breaches and leaks. The need of the hour is to gain control over our identities from centralized entities that hold all our information. Decentralized Identity rooted in blockchain can make this a reality.

Decentralized identity systems return the control and management of data to the users. It is the users’ prerogative to decide how to share the data and with whom. Public key cryptography enables the free movement of private data on public networks without exposing encrypted information. Consequently, the setup offers greater privacy and control over data and helps evade the issues that stem from the inherent insecurity of the centralized systems and poor cyber hygiene. Verifiable credentials (VC) and blockchain are essential elements of Decentralized IDs. Verifiable credentials are a digital representation of physical credentials not limited to physical documents but include aspects such as NFT ownership. VCs, as the name alludes to, are verifiable, and respect privacy. The use of digital signatures is the equivalent of the anti-tampering mechanisms on physical credentials, with blockchain enabling instant credential verification.
Decentralized IDs aren’t siloed to a particular blockchain and can operate across all platforms, including different blockchains. In conjunction with VCs, users can create one secure ID that encompasses all their physical credentials like driver’s license, passport, employee ID, educational certifications, and social media accounts.

Listed below is a breakdown of the elements that form part of the setup of decentralized identity.

Issuer – The entity responsible for creating a Verifiable Credential, writing it in the decentralized ledger, and transmitting it to the holder. In addition, the issuer is responsible for verifying the identity information.

Holder – Holders are users and owners of the identity. They possess one or more Verifiable Credentials transmitted from the issuer to their wallet (typically a phone app).

Verifier – Refers to the receiver/destination that is responsible for verifying the authenticity of the VC using the issuer’s DID from the ledger.

Blockchain/Ledger – Refers to the digital, immutable, decentralized, and distributed ledger that acts as a backbone for decentralized identity systems. It provides the mechanism for DID creation and operation. It serves as a verifiable data registry.

DID document – Accessible using a verifiable data registry, a DID document contains public keys used to securely authenticate and interact with DID. Additionally, it may contain information that specifies the services associated with the DID.

Note: The user’s role in the case of decentralized identity systems is upgraded to that of an issuer as opposed to a mere holder as in centralized identity systems.

Some applications of Decentralized IDs

While there is a growing interest in deploying crypto and the accompanying technology across various communities, from academia to socio-economic and philosophical ones, the current governance model is rather plutocratic (one-token-one-vote).

Most blockchain governance models validate membership through Proof of Work (requiring ownership of machinery for mining) or Proof of Stake (requiring ownership of particular tokens). This resource-based governance model contributes to plutocracy as opposed to democracy, concentrating voting power in the hands of a few players. Likewise, dApps tend to favor money over contributions, making them speculative and beneficial only to users with deep pockets.

An ideal and egalitarian scenario would be one where PoW’s one-CPU-one-vote and PoS’s one-dollar-one-vote are replaced with the creation of a system enabling Proof of Personhood or one-human-one-vote. However, creating a system that corroborates unique human identities has been previously tainted with the Sybil attack problem, wherein a digital network is abused through the creation of several illegitimate virtual personas. Integrating Decentralized IDs into protocols can help address the Sybil problem and contribute to identity verification on-chain. In addition, such protocols will be more accessible and rewarding to new and active participants.

DeFi

The architecture of blockchains has several benefits, but it comes with significant vulnerability in the form of Sybil attacks. The creation of multiple identities by individuals to exploit protocols and extract maximum benefits during airdrops is a common problem. Conversely, if the project integrates Decentralized IDs and airdrops only to verified users, it would succeed in the justified distribution of tokens among participants. Thus, Proof of Personhood protocols necessitate authentication and reduce bot interference to enable egalitarian airdrops.

DAO

The use of Decentralized IDs shall demonstrate a shift in the voting power to create a sustainable democratic governance model. The current token-based voting mechanism is skewed towards the wealthy prioritizing stake ownership over honest and active contribution.

Social Media

Decentralized IDs can provide strong Sybil protection to social media networks. Social media is overrun with bots and misinformation. PoP solutions can help curb the spread of fake news and minimize fake impressions on social media accounts.

Universal Basic Income

Deploying PoP protocols can ensure equitable distribution of crypto to all network participants and eliminate fake identities that defraud the system. The idea is to create accessible and verifiable ecosystems where users aren’t discriminated against or sanctioned but empowered and rewarded.
Examples of Decentralized ID protocols

BrightID

BrightID is a social identity network designed for unique identity verification. It is used to prove that someone exists in a system only once. Creating your identity on BrightID is simple and involves downloading the app and attending a verification party where users need to follow the hosts’ instructions.

Idena

Idena is the first proof-of-person blockchain that allows for anonymous proof of humanity and proof of uniqueness for its participants. Based on democratic principles (one person with equal voting power), every node on the Idena network is linked to a crypto identity and can start mining Idena. Verification on the network doesn’t require disclosure of personal information. Instead, users must appear online when the validation ceremony starts and solve a series of flip-tests (human-made CAPTCHAs). Idena seeks to solve the oracle problem by utilizing its independent mining nodes as oracles. Also, Idena accounts are Ethereum compatible.

The Proof of Personhood Passport

The team behind Gitcoin has built The Proof of Personhood Passport (PoPP), a transportable proof of identity for the Web3 space. The PoPP allows you to leverage the same identity individuals use on Gitcoin Grants. Its design aims to increase Sybil resistance and unlock an entire ecosystem with one-human-one-vote use cases such as quadratic algorithms for voting and funding.

Internet Computer

Internet Computer brings greater trust, privacy, and security to the Web 3 space with its decentralized solution of People Parties. With People Parties, IC aims to create a system that lets billions of people prove anonymous personhood with minimum inconvenience. The primary purpose is democratization, better economic inclusion, and the creation of a blockchain governed by one person, one vote. Moreover, PoP is critical to better network decentralization as it shall ensure nodes do not end up being owned and operated by a small group of whales. IC’s People Parties is built on the fact that real humans can only be in one place at a time. Therefore, validated personhood is bound to benefit the IC ecosystem more broadly: Open Internet Systems (dApps that decentralized governance systems control) will be able to leverage the benefits of improved decentralization. Moreover, any dApp will be able to utilize validated personhood to differentiate between bots and actual humans.
How do People Parties work? Each party shall take place at one specific time. Before that, the participants must commit to a location they shall visit at the time of the party. Participants shall be assigned to small, random subgroups before the party commences. At the time of the party, they shall meet in a real-time audio/video call with the preassigned group members. The video call shall reveal only their surroundings proving they are at the location they committed to. The locations selected will require to have a certain minimum distance.

The Future of Decentralized IDs

According to an article published in the Economist, the world’s most valuable resource is no longer oil but data. At present, all our data is owned and controlled by centralized entities, and despite the endless security measures, our data isn’t safe because breaches and hacks are still common. Decentralized IDs can fix this problem by keeping the data private and ensuring it leaves the private blockchain with explicit permission only. This capability was previously unavailable, but cryptography has made decentralized identity a thriving possibility. Under the Decentralized ID setup, applications enable users to create their own identities. Upon creation, cryptographic keys (public and private) are generated, and these keys are an essential requirement for verifiable credentials and assertions. While innovation in the field of Decentralized IDs is still in its infancy, it’s only a matter of time before these solutions grow exponentially. A mature and advanced version of decentralized identity acceptable in physical and digital places and private and public sectors will have substantial significance in the future.

Decentralized identities won’t be restricted to on-chain activities and can be utilized in the interaction of traditional contract agreements. They can have applications in sectors such as healthcare, education, real estate, travel, etc.

Decentralized Identity has a promising future with the ability to completely reconstruct the centralized physical and digital identity ecosystem into a decentralized and democratized architecture with no particular organization or entity governing user data.

Conclusion

Providing users complete control over their identifiable information is not an easy task. Blockchain is undoubtedly accelerating the shift from siloed and centralized identity systems to decentralized digital identity systems, but there are critical technical, legal, and infrastructural considerations. One key challenge is establishing whether the identity claimed is real, unique, and belongs to the rightful owner, aka Synthetic identity. The interoperability between different DID methods would be another challenge. In order to build an interoperable ecosystem of multiple issuers, verifiers, and wallets, standards must exist so that there is seamless portability and users can easily and increasingly adopt the technology.
While blockchains provide massive utility through the convergence of the security of private keys and the convenience and transparency built in the blockchain architecture, they can still not be considered the panacea for digital identity issues.