Decentralization

Decentralization using blockchain

 Decentralization is a core benefit and service

provided by the blockchain technology.
 Blockchain does not need any intermediaries and
can function with many different leaders chosen
via consensus mechanisms.
 This model allows anyone to compete to become the
decision-making authority.
 This competition is governed by a consensus
mechanism and Proof of Work (PoW).
 Decentralization using blockchain
 Decentralization is applied in varying degrees from semi-
decentralized to fully decentralized depending on the
requirements and circumstances.
 Example
 Information and communication technology (ICT) has
conventionally been based on a centralized paradigm
 With bitcoin and the advent of the blockchain
technology, this model has changed and now the
technology that allows anyone to start a decentralized
system
 Centralized systems

 Conventional (client–server) IT systems whereby there

is a single authority that controls the system and is
solely in-charge of all operations on the system.
 Online service providers, such as eBay, Google,
Amazon, Apple's App Store, and the majority of other
providers, use this model of delivering services.
 Distributed system

 Data and computation are spread across multiple

nodes in the network.
 Parallel computing v/s Distributed system.
 Both of these models are used with variations in
order to achieve failure tolerance and speed.
 In this model, there is still a central authority that has
control over all nodes and governs processing.
 This means that the system is still centralized in
nature.
Decentralized system
 key difference between a decentralized system and distributed
system
 In a distributed system, there still exists a central authority
that governs the entire system
 In a decentralized system, no such authority exists.
 A decentralized system is a type of network whereby nodes are
not dependent on a single master node;
 instead, control is distributed among many nodes.
 User to agree on something via a consensus algorithm without
the need for a central trusted third party, intermediary, or
service provider
 For example,
 Each department in an organization has its own database
server
 Taking away the power from the central server and
distributing it to the sub-departments that manage their own
Methods of decentralization

 Disintermediation
 Through competition
Disintermediation

 Example: Imagine you want to send money to your

friend in another country.
 You go to a bank that will transfer your money to
the bank for a fee.
 Bank keeps a central database that is updated,
confirming that you have sent the money.
 With blockchain technology, it is possible to send this
money directly to your friend without the need for a
bank.
 This way, the intermediary is no longer required and
decentralization is achieved by disintermediation.
 This model can be used not only in finance but also in
many other different industries.
Through competition
 Group of service providers compete with each other in order to
be selected for the provision of services by the system.
 This paradigm does not achieve complete decentralization,
but to a certain degree ensures that an intermediary or service
provider is not monopolizing the service.
 In the context of blockchain technology
 Smart contracts can choose an external data provider
from a large number of providers based on their reputation,
previous score, reviews, and quality of service.
 This will not result in full decentralization, but it allows smart
contracts to make a free choice based on the criteria
mentioned earlier.
 This way, an environment of competition is cultivated among
service providers, whereby they compete with each other to
become the data provider of choice.
Benefits of decentralization

 Transparency
 Efficiency
 Cost saving
 Development of trusted ecosystems
 Privacy
 Anonymity
 Challenges
 Security requirements
 Software bugs
 Human errors
 For example
 In a decentralized system such as bitcoin or
Ethereum, where security is usually provided by
private keys
 How can it be ensured that a smart property
associated with these private keys cannot be
rendered
 Useless if, due to a human error, the private keys are
lost or if, due to a bug in the smart contract code
 Decentralized application is vulnerable to attack by
 How to decentralize
 A framework has been proposed by Arvind
Narayanan and others that can be used to evaluate
the decentralization requirements of a variety of
things in the context of blockchain technology.
 The framework basically proposes four questions
that, once answered, provide a clear idea as to how a
system can be decentralized.
 What is being decentralized?
 What level of decentralization is required?
 What blockchain is used?
 What security mechanism is used?
How to decentralize

 The first question simply asks what system is being

decentralized.
 Any system, for example an Identity system or trading.
 The next question can be answered by specifying the
level of decentralization required by looking at the
scale of decentralization.
 full disintermediation / partial disintermediation.
How to decentralize
 Third question is quite straightforward, where
developers can make a choice as to which blockchain
is suitable for a particular application.
 Bitcoin / Ethereum blockchain or any other blockchain
 key question needs to be answered about the security
mechanism as to how the security of a decentralized
system can be guaranteed.
 Atomicity, for example, whereby either the transaction
executes in full or does not execute at all. This ensures the
integrity of the system.
 Other mechanisms can include reputation, which allows
varying degrees of trust in a system.
Examples
 Money transfer system -which is required to be
decentralized
 Answer 1:
 Money transfer system.
 Answer 2:
 Disintermediation.
 Answer 3:
 Bitcoin.
 Answer 4:
 Atomicity.
 Blockchain and full ecosystem
decentralization

 In order to achieve complete

decentralization, it is necessary that the
environment around the blockchain is
also decentralized
 Storage
 Communication
 Computation
 Storage
 Data can be stored directly in a blockchain, and with
this, it does achieve decentralization,
 Major disadvantage of this approach is that blockchain
is not suitable for storing large amounts of data by
design
 It can store simple transactions and some arbitrary data but is
certainly not suitable for storing images or large blobs of data,
as is the case in traditional database systems
 Alternative is to use distributed hash tables (DHTs).
 DHTs were originally used in peer-to-peer file sharing
software, such as BitTorrent, Napster, Kazaa, and
Gnutella.
 BitTorrent turns out to be the most scalable and fast
network, but the issue is that there is no incentive for
 Storage
 Users do not usually keep files permanentl
 If nodes leave the network that has data required
by someone there is no way to retrieve it
except having the required nodes rejoin the
network again so that the files become
available once more.
 Two main requirements are high availability
and link stability
 Data should be available when required and
network links should also always be
accessible.
 Storage
 Inter Planetary File System (IPFS) by Juan Benet
possesses both properties and the vision is to provide a
decentralized World Wide Web by replacing the HTTP
protocol.
 IPFS uses Kademlia DHT and merkle DAG (Directed Acyclic
Graph) to provide the storage and searching functionality,
respectively
 The incentive mechanism is based on a protocol known as
Filecoin that pays incentives to nodes that store data using
the BitSwap mechanism.
 The BitSwap mechanism allows nodes to keep a simple ledger
of bytes sent or bytes received under a one-to-one relationship.
 Git-based version control mechanism is used in IPFS to
provide structure and control over the versioning of data.
 Storage
 Ethereum has its own decentralized and distributed
ecosystem that uses Swarm for storage and the
whisper protocol for communication.
 Maidsafe is aiming to provide a decentralized World
Wide Web.
 BigChainDB is another storage layer decentralization
project aimed at providing a scalable, fast, and
linearly scalable decentralized database as opposed
to a traditional filesystem.
 BigChainDB complements decentralized processing
platforms and file systems such as Ethereum and
IPFS.
Communication

 Services such as e-mail and online storage are all

now based on a paradigm where the service
provider is in control and users trust them to give
them access to the service when required.
 This model is based on the trust of the central authority
(the service provider)
 Users are not in control of their data; even passwords
are stored on trusted third-party systems.
 Access to user data is guaranteed and is not dependent
on a single third party.
Communication
 Access to the Internet is based on Internet service
providers (ISPs) that act as a central hub for Internet
users.
 If the ISP is shut down for any other reasons, then no
communication is possible
 An alternative is to use mesh networks
 Limited in functionality as compared to the Internet
 Provide a decentralized alternative where nodes can
talk directly to each other without a central hub
such as an ISP.
 Communication

 Original vision of the Internet was to build a decentralized

network;
 Over the years, with the advent of large-scale service providers
such as Google, Amazon, and eBay, the control is shifting
toward the big players.
 For example, email is a decentralized system at its core;
anyone can run an e-mail server with minimal effort and can
start sending and receiving e-mails,
 But there is a better alternative available that is already
providing a managed service for end users,
 There is a natural inclination toward selecting a centralized
service as it is more convenient and free
 Blockchain has once again given this vision of decentralization
to the world
Computation

 Decentralization of computing or processing is

achieved by a blockchain technology such as
Ethereum
 where smart contracts with embedded
business logic can run on the network.
 Other blockchain technologies also provide
similar processing layer platforms where
business logic can run over the network in a
decentralized manner.
 Decentralized Ecosystem

 On the bottom layer, Internet or Meshnets provides a

decentralized communication layer
 Storage layer uses technologies such as IPFS and
BigChainDB to enable decentralization
 Blockchain that serves as a decentralized processing
layer.
 Smart contract

 A smart contract can be thought of

as a small decentralized program.
 Smart contracts do not necessarily
need a blockchain to run;
 However, due to the security
benefits that the blockchain
technology provides, it is now
becoming almost a standard to
use blockchain as a
decentralized execution platform
for smart contracts.
 Smart contract
 A smart contract usually contains some
business logic and a limited amount of data.
 Actors or participants in the blockchain use
these smart contracts or they run autonomously
on behalf of the network participants.
 Small programs reside on the blockchain and
execute business logic if some specific criteria
are met
 Decentralized organizations

 Decentralized organization (DOs)

 Software programs that run on a blockchain
 Based on the idea of real human organizations with
people and protocols.
 DO, in the form of a smart contract or a set of
smart contracts, is added to the blockchain,
 It becomes decentralized and parties interact with
each other based on the code defined within the DO
software.
 Decentralized autonomous
organizations
 Just like DOs, a Decentralized autonomous
organization (DAO) is also a computer program than
runs on top of a blockchain and embedded within it are
governance and business logic rules.
 DAO and DO are basically the same thing, but the main
difference is
 DAOs are autonomous, which means that they are
fully automated and contain artificially intelligent logic
 DOs lack this feature and rely on human input in order
to execute business logic.
Decentralized autonomous
organizations
 Ethereum blockchain led the way with the introduction of
DAOs for the first time.
 In DAO, the code is considered the governing entity
rather than humans or paper contracts.
 Curator,, is a human entity that participates as someone
who maintains this code and acts as a proposal evaluator
for the community
 DAOs are capable of hiring external Contractors if enough
input is received from the token holders (participants).
 Decentralized autonomous
 organizations
The most famous DAO project is The DAO (h t t p s ://d a o h u b
. o r g ) as it raised 168 million US dollars in its crowd-funding
phase.
 Venture capital fund which was aimed at providing a
decentralized business model with no single entity as an
owner.
 Hacked due to a bug in the DAO code and millions of dollars'
worth of Ether currency (ETH) were siphoned out of the
DAO into a child DAO created by the hackers.
 It required a hard fork on the Ethereum blockchain to
reverse the impact of the hack and initiate the recovery of
the funds.
 hard fork: is a radical change to the protocol that makes
previously invalid blocks/transactions valid (or vice-versa).
Decentralized autonomous
organizations
 DAOs do not have any legal status even though
they may contain some intelligent code that enforces
some protocols and conditions,
 But these rules have no value in the current real-
world legal system
 An Autonomous Agent (AA) is a piece of code that
runs without human intervention.
 The fact that DAOs are purely decentralized entities
makes it possible to run them in any physical
jurisdiction.
 Issue is how a current legal system would work with
such a varied mix of different jurisdictions and
geographies.
 Decentralized autonomous
corporations
 DAOs and Decentralized autonomous
corporations (DACs) are a similar concept but are
considered a smaller subset of DAOs.
 General difference is
 DAOs are usually considered to be nonprofit,
 DACs can make money via shares offered to the
participants and by paying dividends.
 These corporations can run a business automatically
without human intervention based on the logic
programmed within them.
 Decentralized autonomous
 societies autonomous societies (DASs) are a
Decentralized
concept whereby entire societies can function on a
blockchain with the help of
 multiple complex smart contracts
 combination of DAOs and Decentralized applications
(DAPPs)
 Many services that a government offers can be delivered via
blockchain,
 Government Identity Card systems, passport
issuance, ,records of deeds, marriages, and births.
 if a government is corrupt and central systems do not
provide the satisfactory levels of trust that a society needs
 Society can start its own virtual blockchain that is driven
by decentralized consensus and is transparent.
 Decentralized applications
 All DAOs, DACs, and DOs are basically decentralized
applications that run on top of a blockchain in a peer-to-
peer network.
 Decentralized applications or DAPPs are software
programs that can
 Run on their own blockchain
 Use another already existing established blockchain,
 Use only protocols of an existing blockchain solution.
 These are called Type I, Type II, and Type III DAPPs.
 Requirements of a decentralized
application
 The DAPP should be fully open source and autonomous
and no single entity should be in control of a majority of its
tokens.
 All changes to the application must be consensus-driven
based on the feedback given by the community.
 Data and records of operations of the application must be
cryptographically secured and stored on a public,
decentralized blockchain in order to avoid any central
points of failure.
 A cryptographic token must be used by the application in
order to provide access and rewards to those who
contribute value to the applications, for example, miners in
bitcoin.
 The tokens must be generated by the decentralized
 Operations of a DAPP

 Establishment of consensus by a DAPP can be

achieved using consensus algorithms such as Proof of
Work and Proof of Stake.
 PoW has been found to be incredibly resistant to 51%
attacks, as is evident from bitcoin.
 DAPP can distribute tokens (coins) via mining,
fundraising, and development.
Examples -Decentralized applications
 KYC-Chain
 Application to manage Know Your Customer (KYC)
data in a secure and convenient way based on smart
contracts.
 OpenBazaar
 Decentralized peer-to-peer network that allows
commercial activities directly between sellers and
buyers instead of relying on a central party
 as opposed to conventional providers such as eBay and
Amazon.
 It should be noted that this system is not built on top of
a blockchain; instead, distributed hash tables are used
in a peer-to-peer network in order to enable direct
communication and data sharing between peers.
 Examples -Decentralized applications

 Lazooz
 Decentralized equivalent of Uber.
 It allows peer-to-peer ride sharing
 Users can be incentivized by proof of movement
and can earn Zooz coins.
 Platforms for decentralization-
Ethereum
 Ethereum tops the list as being the first blockchain
that introduced a Turing-complete language and
the concept of a virtual machine.
 With the availability of Turing complete language
called Solidity, endless possibilities have opened for
the development of decentralized applications.
 Ethereum proposed in 2013 by Vitalik Buterin and
provides a public blockchain to develop smart
contracts and decentralized applications.
 Currency tokens on Ethereum are called Ethers.
 Platforms for decentralization-
 Maidsafe
Maidsafe provides a SAFE (Secure Access for
Everyone) network that is made up of unused
computing resources, such as storage, processing
power, and the data connections of its users.
 The files on the network are divided into small chunks
of data that are encrypted and distributed throughout
the network randomly.
 This data can only be retrieved by its respective owner.
 One key innovation is that duplicate files are
automatically rejected on the network, which helps
reduce the need for additional computing resources to
manage the load.
 It uses Safecoin as a token to incentivize its
 Platforms for decentralization-
 Lisk
Lisk is a blockchain application development and
cryptocurrency platform.
 It allows developers to use JavaScript to build decentralized
applications and host them in their own respective sidechains.
 Lisk uses the Delegated Proof of Stake (DPOS) mechanism
for consensus whereby 101 nodes can be elected to secure the
network and propose blocks.
 It uses the [Link] and JavaScript backend whereas the
frontend allows the use of standard technologies, such as
CSS3, HTML5, and JavaScript.
 Lisk uses LSK coin as a currency on the blockchain.
 Another derivative of Lisk is Rise, which is a Lisk-based
decentralized application and digital currency platform.
 It has more focus on the security of the system .
References

 Imran Bashir. “Mastring BlockChain”,

Packt
 Web Materials