Thread by @oliverbeige

Decentralization is about directing information flow and replicating decision points. One of its crucial design concepts is connectivity. A central (sic) theorem on connectivity is Menger's theorem, introduced by Karl Menger, the son of Austrian economist Carl Menger, in 1927.

Decentralization differs from pure replication (same decision taken by multiple agents) and distribution (chunks of the overall decision problem assigned to multiple agents) in that it is designed into the information flow and can incorporate multiple entry/exit points.

If that's too abstract, think of a rail or road network.

https://twitter.com/oliverbeige/status/948526874921234432

So the main question to ask if you want to find out if a system is decentralized is: "to the nodes work on different problems which derive from their position in the network flow, and not by the allocation mechanism of a central planner?"

Under such a premise, most current blockchain-based consensus mechanisms aren't decentralized. They are highly redundant and (hopefully) geographically distributed (not at the same physical location).

Cash flow on the other hand is. Securitization hinges only on the recipient.

The design of cash on the other hand has strong centralizing tendencies. Decentralized P2P cash flow hinges on strong security features, and a common understanding of them.

Both coin and banknote securitization has always been an arms race. There was a widespread belief that the advent of color copiers would also spell the end of cash.

Similarly, securitization design in blockchain-based systems is also highly centralized, for the very same reasons. That's why blockchains aren't cryptocurrencies, they are proprietary payment systems that impose a lock-in on the user.

Redundancy is a central (sic) concept in competitive economies, since it fosters an arms race for most efficient resource allocation — that thing called innovation.

But modern economies are no longer about redundancy, as they were in the commodity economy era when Lange and Hayek discussed the respective merits of central planning vs decentralized emergence, but about diversification, aka monopolistic competition.

Redundancy competition fosters the emergence of high-efficiency, single-purpose tools like ASICs. In case they lose the arms race, or in case of an economic reversal, they become obsolete. Monopolistic competition fosters the creation of flexible tools which can be repurposed.

So the design principles to create a truly decentralized economy rather than a redundancy economy, to avoid diseconomies of scale and scope, to push the decision out to the nodes in the network flow, have been introduced 90 years ago by Karl, son of Carl.
en.wikipedia.org/wiki/Mengers_t…

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