Confused About 'Decentralization'? Try This 13-Minute Intro

Mathematician Charles Hoskinson pulls it off. The former CEO of Ethereum gave a short and sweet TED talk describing his vision for Bitcoin and decentralization.

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Confused About 'Decentralization'? Try This 13-Minute Intro

The buzzword “decentralization” is often flung around in Bitcoin-related topics. But it is not always an easy concept to describe to an unfamiliar audience.

Mathematician Charles Hoskinson pulls it off. The former CEO of Ethereum gave a short and sweet TED talk describing his vision for Bitcoin and decentralization.

How does he do it?  While the technical and political aspects of decentralization are cool, he illustrates how the appeal is not just decentralization for the hell of decentralization. Hoskinson level-headedly describes how the technology behind Bitcoin can improve lives.

Charles Hoskinson

The problem

The banked and documented world lives significantly different lives than their counterparts and the quality of life is generally better for those in the former camp.

Hoskinson illustrates this with the help of two characters. “Jeremy” is a 30-year-old man from the U.S. with identification. He took out loans to fund his house and his car. He manages a bank account.

A fictional man from Afghanistan “Ahmed Khan,” by contrast, rides a bike to work, and lives in a cash economy with no bank account. His agreements are verbal and unsupported by legal documents. He has little recourse to any judicial system if the agreement goes sour or the other party doesn't hold up their end of the deal. He's off the grid: He has no documentation to back up his ownership property.

“That's the reality that 3 billion people must live in,” Hoskinson said of Ahmed's situation.

Furthermore, 192 million people living and working abroad send money home via remittances and are hit with high fees to send virtual currency around the world.

Hoskinson described a shockingly common example of how troublesome this situation is: “When people flee the land during war or other crises, they may return to their homes a few years later, and someone else will have settled on the same land. It's hard to resolve these cases. And internationally displaced persons recently topped 50 million, a number unmatched since World War II.”

Hernando De Soto Polar, a Peruvian economist who Hoskinson noted is good friends with former president Bill Clinton, “sat down and calculated that there's about 10 trillion dollars worth of wealth that's just locked up due to this lack of documentation,” Hoskinson said.

The “Transformative Triumvirate”

How do we fix this? Crazily enough, “Bitcoin could extend access to banking and documentation,” Hoskinson said. He calls the suite of Bitcoin technologies the “Transformative Triumvirate”—referencing Roman political regime dominated by three individuals—of blockchains, decentralized transaction systems, and smart contracts.

“If you're going to store something like who owns what, you need that database to be secure, you need it to be tamper-resistant, you need it to be distributed” he said. And the blockchain is a giant, distributed database—the best in the world. It's a great place to store property rights, credentials, and other documentation. Once something goes in the blockchain, it can't come out.

The transaction system is easy to explain. It allows for transactions with reduced fees.

Then there's the third and final piece of the triumvirate: smart contracts. “This is where the magic actually happens” Hoskinson said. Traditional contracts between two people. But what if we could execute contracts “algorithmically” without third parties?

Life could be different

Hoskinson describes how Ahmed's life would significantly different with these new tools. He needs reputation, credit, a way to manage risk, lower remittance fees, and proof that he owns land. Put simply: The three could decentralize a number of services, to Ahmed's benefit.

Storing documents and information in the blockchain could be a part of the solution. “It doesn't matter who's in charge, what's going on, the particular political whims—it's there.” Hoskinson notes that Ahmed could wield this tool to prove ownership and request documentation in a decentralized manner.

Transactions and remittances in this decentralized system cost less than a penny (albeit this is currently being debated) —not nearly as much as the hefty 15% fees required in the traditional system.

Smart contacts enable microfinance and microinsurance. “Think of Kiva, think of the Lending Club, think of the Grameen bank, and imagine they had some sort of a Frankenstein child,” Hoskinson declared. That child would be peer-to-peer lending market that anyone in the world could access and use it at cheaply. It would be possible to pay anyone in the world.

Looking forward

There's one colossal problem: Only 40% of the world population is connected to the Internet. Hoskinson notes that this percentage is amazing, considering the Internet's youth—it was only commercialized beyond the small world of academia in the mid-90's. But these tools require a connection. 

But getting to 100% is an important goal. Plenty of expanding efforts are underway... Consider Facebook's drones or Google's balloons aimed to “connect the unconnected.” But Hoskinson proposes a different solution:

“How do we get the Internet to Ahmed Khan? Well, in just the same way as we can build a decentralized lending network, and in just the same way we can a decentralized insurance network, we can also actually build a decentralized ISP.”

But there's a long way to go. Hoskinson pointed out a number of projects underway—everything from BitPesa to Namecoin—but while the idea is fascinating and could have far-reaching implications for the disadvantaged across the globe, Bitcoin-induced decentralization is in a very early stage.

“There's a lot of work to be done,” he said.

Watch Hoskinson's entire presentation here:

For more on decentralization, be sure to also check out: “Top 5 Moments in Decentralization History.”

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