Why decentralization is always ripe for co-optation

Will your transformative technology just entrench the status quo?

Things have come a long way since I was first exposed to cryptocurrency. Back in 2011 it was going to undermine nation-states by letting any community form its own basis of exchange. A decade later, crypto has little chance of fulfilling its destiny as a currency, but that’s OK because it’s proven ideal for the already wealthy, as a tool for tax evasion, money laundering, market manipulation, and infrastructure capture. States like it for the traceability and conventional banks incorporate it to chase the wave and diversify to a new high risk asset class.

This is not what crypto imagined for itself.

But it’s not a surprise. You can see the same dynamic play out in Apple Music, YouTube, Substack, and the post-Twitter scramble for social media dominance. These technologies are sold to society on their ability to raise the floor, but they cash out on their ability to raise the ceiling. The debate on this played out between Chris Anderson (a founder of Wired) and Anita Elberse (in her 2013 book Blockbusters). In response to Anderson’s argument that social media technologies empower the “fat tail” of regular-people contributors, Elberse countered with evidence of how it has increased market concentration by making the biggest bigger.

To skip to the end of that debate, the answer is “both”. Technologies that make new means available to everyone make those means available to the entrenched as well. The tail gets fatter at the same time as the peaks get taller. It’s all the same process.

So the question stops being “will this help the poor or the rich?” It becomes “who will it help faster?” The question is no longer transformative potential, but differential transformative power. Can this technology undermine the status quo faster than it bolsters it?

And for most of these technologies, the answer is “no”. Maybe, like crypto, a few people fell up and a few fell down. That is not transformation.

Why do people miss this? Because they stop at

“centralization = bad for the people; decentralization = good for the people”.

We forget it’s dual, that

“centralization = good for the entrenched; decentralization = good for the entrenched”

Centralization increases the efficiency of an already-dominant system, while decentralization increases its reach.

This all applies just fine to the latest technology that has people looking for transformative potential: decentralized identity (DID). It’s considered important because so many new mechanisms in web3 require that an address has an onto and 1-1 mapping to a human individual. So if identity can be solved then web3 is unleashed. But, thinking for just a second, decentralized identity technologies will fall into the same trap of entrenching the status quo faster than they isolate their transformative potential. Let’s say that DID scales privacy and uniqueness. If that happens then nothing keeps an existing body from running with uniqueness features and dropping privacy features.

If you’re bought into my argument so far, then you see that it’s not enough to develop technologies that have the option of empowering people, because most developers won’t take that option. You can’t take over just by growing because you can’t grow faster than the already grown. What is necessary is systems that are designed to actively counter accumulation and capture.

I show it in this paper looking at the accumulation of power by US basketball teams. For over a century, American basketball teams have been trying to gain and retain advantages on each other. Over the same time period, the leagues hosting them have served “sport over team,” exercising their power to change the rules to maintain competitive balance between teams. By preventing any one team from becoming too much more powerful than any other, you keep the sport interesting and you keep fans coming.

But what we’ve actually seen is that, over this century, basketball games have become more predictable: if Team A beat Team B and Team B beat Team C, then over a century Team A has become more and more likely to beat Team C. This is evidence that teams have diverged from each other in skill, despite all the regulatory power that leagues have been given to keep them even. If the rich get richer even in systems with an active enduring agency empowered to prevent the rich from getting richer, then concentration of power is deeply endemic and can’t just be wished away. It has to be planned for and countered.

This is why redistribution is a core principle of progressive and socialist politics. You can’t just introduce a new tweak and wait for things to correct. You need a mechanism to actively redistribute at regular intervals. Like taxes.

In web3, there aren’t many technologies that succeed at the higher bar of actively resisting centralization. One example might be quadratic voting, which has taken off probably because it’s market-centric branding has kept it from being considered redistributive (it is).

So for now my attitude toward decentralization is “Wake me up when you have a plan to grow faster than you can be co-opted.” Wake me up when you’ve decentralized taxation.