The limits of decentralization

For many of us who are interested in network architecture and Internet Regulation, the question of decentralization always tends to come up. The Internet was designed as a decentralized network, this means, a system where there is no central decision-making point of how information is shared. A decentralized system tends to be a subset of distributed systems, where the load of transmission is shared equally along the nodes. There can be distributed centralized systems, but also distributed decentralized ones, and the Internet is such.

The beauty of decentralized models is their resilience, the lack of a central authority means that such networks can survive if a node is taken out of the system. The Internet, as intended, operates with this basic principle in mind. Decentralization then is a foundational part of the network.

This seemingly chaotic and anarchic system served as one of the most prominent examples of how a world without central authority could operate. It’s no coincidence that some of the early Internet regulation theorists were decidedly anti-statist, be it in a Libertarian or left-leaning way. Centralized control was seen as anathema to systems designed to forego such intervention, and if any regulation was suggested, it was mostly some form of self-regulation.

Many of these ideals were eventually translated into policy and regulation strategies. After all, these are just part of the wider debate in society about the the state, power, control, the economy, and the status and reach of regulators. What has been interesting is that the Internet galvanised a generation of people who have a natural mistrust of authority. Moreover, the Internet seemed like the perfect place to foster bottom-up organisations,  grassroots activists, the civil society, and a wide range of non-governmental stakeholders. Decentralised solutions are favoured by a large swathe of online activists, and for the most part I would class myself as some form of techno-anarchist, although my politics are currently all over the place.

Decentralization became the buzzword for many theorists, and eventually this idea permeated to more practical applications. The most evident example is to be found in the gig economy, and to a larger degree in the wider technocracy arising from Silicon Valley and the start-up culture of the last few years. Disruption as an ideology has resulted in business practices that try to bypass “outdated” regulations designed for an analogue world in favour of unbound and fast action. A technological utopia responding only to the Invisible Hand of the Algorithm.

Decentralization moved into finance and also spawned the cryptocurrency landscape. The advent of Bitcoin and the ensuing blockchain craze were fuelled in great part by Libertarians and anarcho-capitalists who saw cryptocurrencies as a technological solution against the greatest centralization of all, financial markets, regulation, and monetary strategies designed and policed by the state. A good amount of the most vocal cryptocurrency proponents share a distrust of the government; they believe that fiat cash is doomed as it is not sound money, and only cryptocurrencies backed by some sort of “proof of work” are the only version of stable currency viable in the future. The Bitcoin Standard by Saifedean Ammous is their new Bible, where Bitcoin is set to become the new gold propping up the future global economy.

For years, this decentralization ideology managed to march unopposed. Western economies failed to heed many of the lessons from 2008, and there has been a race towards de-regulation in many countries. Cryptocurrencies were a response to the perceived failings of the financial market crash of 2008, but they also relied on de-regulation and decentralization. A technocratic ideology took over, slow state institutions do not get the new networked world, they should let these decentralized tech companies do their thing. Disruption is the key, get out of the way, old and inefficient state.

But interestingly, the decentralization mantra led to its own type of centralization, for all the talk of economic liberalism, tech giants have become hugely centralized entities in their own right. Airbnb and Uber managed to build empires based on the idea of an army of non-workers connected and organized by algorithms, while the inefficient legacy regulated industries could just watch in terror as their market share dwindled.

Enter SARS-CoV-2, and everything changes.

There have been all sort of national responses to the rapid spread of the virus, but one trend is emerging: early and robust response by both local and national authorities have helped to lower the number of infected and dead in some countries. South Korea undertook a very early testing and contact tracing approach, Germany has done an excellent job with testing, and Taiwan has managed with stringent quarantine and testing as well. Costa Rica has been another success story that shows that even a developing country can manage, early testing, contact tracing and quarantine of early cases has translated in under 500 cases and only 2 dead at the time of writing.

On the contrary, countries that have taken a lax approach at the start have not done well. The UK ignored the warning signs coming from Italy and Spain, and now the number of dead has been rising daily. But it is the US where the virus has hit the hardest, with a combination of an inefficient federal government, mixed messages, early dismissal by Trump and some parts of the press, and a lack of coordinated approach, leaving each state to fend for its own. The absence of universal health care has only made things worse.

The trend is that countries with strong social norms, good coordination, a reliance on expert advice, and good compliance by the population has managed well. Countries with lack of respect for authority and expertise, coupled with entrenched individualism that flaunts social distancing, are not managing so well.

Besides bad governments and inept leaders, the other casualty from the crisis has been Libertarianism and Neoliberalism. Good governments and sturdy public institutions have been a common denominator of those who have done well, precisely the same organisations that proponents or smaller government would like to get rid of. I keep track of many Libertarians online, and the common response has been to criticise governments and official institutions, some of which are precisely not responding as expected because of years of neglect and lack of funding from the neoliberals. The Tory austerity in the UK hit the NHS hard, and now they have re-discovered their love for funding it. A common villain in US Libertarian circles has been the CDC, the same institution that has been crippled by cuts from the Trump administration.

While Libertarians are quick to criticise some governmental responses, they have been extremely quiet to describe how exactly would a private-led response to Covid-19 would look like. Can you imagine a response to the crisis led by Elon Musk and an army of tech-bros? I have kept an eye on these circles, who will say with no hint of sarcasm that the best response to the crisis has been from people on Twitter. Not a single specific proposal mind you, just self-congratulatory tweets demonising the government, the press, old people, the medical profession, and financial systems. It’s not the first time that I have noticed that computer science geeks overestimate their own capabilities. The calls to destroy the government is never followed by detail of how to replace it other than the elevation of some form of Twitterati Elite, and the widespread enactment of smart contracts.

One of the most interesting responses to the crisis has been from cryptocurrency circles. A foundation of cryptocurrency ideology has been an universal mistrust in public institutions. Many cryptocurrency maximalists strongly believe that financial markets are set to crash due to rising debt and weak fiat currencies, and that only digital currencies supported by the blockchain will survive. This has been such an article of faith that it kept driving the price of some currencies upwards for many years. But then we have the very first global financial crisis of the Crypto Era, and something curious happened, there were no hordes of new investors buying Bitcoin. When the trouble began, people held on to their dirty fiat because it allowed them to buy food and toilet paper. Fiat money has several advantages over cryptocurrencies, it’s widely accepted, but also you can use it to issue credit, which is extremely useful when the global economy is tanking due to a severe lack of liquidity. With people being laid off and businesses going under, only the flexibility of a centralized financial system allows for things to remain manageable until the crisis is over. This means having to resort to printing money, which appears to have triggered quite a lot of Bitcoin enthusiasts, and even becoming a meme. How dare they print fiat money just like that? The thing is that if we had to rely on a system that doesn’t allow for such flexibility because all currency had to be backed up by some sort of metal reserve, then the economy would have indeed been destroyed. But we are currently under some sort of global economic understanding, we will be fine allowing central banks to print money because we all have a stake on the system not crashing.

The other sector that has not had a good crisis is the gig economy. Airbnb in particular is suffering as people have stopped travelling altogether. It should be no surprise that a business built on disrupting the hospitality industry, and that is blamed for also making it difficult to rent homes in sought-after locations, has made it difficult for thousands of individuals to survive through the crisis. As these are not businesses as such, the hosts are unlikely to benefit from state aid.

But we should not write-off decentralization altogether. One of the reasons why Germany has had a good response is not only because of the central guidance, but because it has an excellent local government infrastructure; it is a federation working as intended, when other federations have not fared so well. Those of us who still believe that decentralization is desirable governance mechanism should learn from this crisis. Build decentralized systems that could withstand stress, or that at least can be flexible enough to operate with wider networks if the need arises. Decentralization could also be favoured during booms, with the understanding that a crisis requires a different type of organization.

On the meantime, stay safe! This disease is no joke.