The effectiveness of a decentralized web3 system will depend on its security, economy, and equality of information. Therefore, we focus on decentralization in the context of web3 and divide it into three distinct categories to advance its application.
●The technical decentralization — — is mainly related to the security of the web3 system
At a fundamental level, decentralized blockchain and smart contract protocols provide a permissionless, verifiable ecosystem upon which web3’s products and services can be built without the need for a trusted central intermediary.
●Decentralization of the economy — mainly related to the economy of the web3 system
The advent of programmable blockchains (such as Ethereum) and digital assets has unlocked the possibility of decentralized systems whose own decentralized economies involve the accumulation (or loss) of trade, services, and wealth
● Law decentralization — mainly related to the legitimacy of the web3 system
Decentralization has implications for a range of legal issues, including taxation, liability, ownership, intellectual property, reporting, and privacy.
One of the main advantages of the web3 system is that it facilitates the formation of a decentralized economy and autonomous free market economy that is not controlled by any central authority. These economies are able to achieve self-regulating capitalism, accumulating value (such as information, economic value, voting rights, etc.) from a wide range of sources and distributing it fairly among the stakeholders of the system.
The Web3 system initially achieves this by giving meaningful power, control, and ownership to its stakeholders (through airdrops, other token distributions, decentralized governance, etc.), and by balancing the incentives of these stakeholders to maintain this goal. While the lack of centralized control means that decentralized systems tend to be less organizationally efficient than centralized systems, it also means that they are not dependent on or subject to the capabilities, powers, or conventions of individuals or leading groups. For example, it frees developers from the concerns they often encounter when building web2 products, including corporate actors changing the rules of engagement with platforms they control when it is in the interests of the business. Balance incentives among stakeholders of web3 systems (including developers, contributors, and consumers), and then drive further valuable contributions to these systems, benefiting the community and builders.
In contrast, the centrally controlled economy of web2 systems relies on the concentration of power and hierarchical decision-making and execution to drive value. While this structure can be efficient, this efficiency comes at a significant cost. Centralized systems are not only constrained by the practices and capabilities of controllers (including officers, directors, shareholders, interest groups, regulators, and governments) but they are often focused on maximizing benefits for these controllers to the detriment of users, including The interests of contributors and other decentralized stakeholders. In web2, this is manifested in prioritizing captivity and closed systems, requiring users to sacrifice ownership and autonomy over their digital world (social media posts, followers and photos, media permissions, applications, etc., are locked in this system).
A real-world example of the opposition between decentralized and centralized economies can be seen in the comparison of the Ethereum blockchain with various web2 systems. Ethereum is a decentralized programmable blockchain on which hundreds of smart contract protocols and applications have been built and deployed without requiring any authority or any rate of adoption by a central authority.
The relationship between economic and legal decentralization
The decentralization of a web3 marketplace that utilizes native governance tokens to incentivize developers to add functionality to the marketplace and incentivize buyers and sellers to participate in trading activities. For a marketplace’s decentralized economy to work, it needs to properly balance what it has The distribution of accumulated value (such as information, economic value, voting rights, etc.) to its stakeholders (developers, buyers, and sellers). Any significant and persistent imbalance in this arrangement could jeopardize the economy of the system. For example, since native governance tokens are used as an incentive mechanism for the economic operation of the system, the accumulation of unbalanced information related to the value of native governance tokens (such as information related to the operation of the market) may allow one party to manipulate the market for its own benefit. Likewise, an imbalance in the accumulation of voting power may allow one party to change the rules of the market for its own benefit. Finally, if the economic value accumulated by the market is unevenly distributed among stakeholders, unpopular voters may leave for other competitive markets. While the decentralized economy of markets may withstand isolated imbalances in the short term (especially if they benefit benevolent actors), in the long run, these imbalances are best eliminated in order to prevent them from being exploited.
Components of a Web3 System
Blockchain networks and smart contract protocols; digital assets; and decentralized governance.
- Blockchain Network and Smart Contract Protocol
Blockchain and smart contract protocols can support technological decentralization by providing a permissionless, trustless, and verifiable ecosystem in which value can be transferred, upon which networks and products, and services. These are the core innovations of programmable blockchains. Products and services can be deployed and run without the need for a central party to operate, opening up a vast world of possibilities, including community-authorized applications that do not need to rely on algorithmically driven advertising programs to make them economically viable. Additionally, public blockchains and smart contract protocols support decentralization by:
(1) enable transparency; (2) open-source/public goods; (3) enable data portability; and (4) composability.
As we are still in the early stages of web3 development, few blockchain networks and protocols are currently insurmountable with network effects. As a result, it has been particularly difficult for protocols to rely on implicit incentives to promote a resilient decentralized economy of their systems, which in turn drives them to prioritize attempts to be explicit to contributors (i.e. liquidity mining projects) and developers (i.e. grant projects). excitation. So far, most of these projects have failed to produce long-term and meaningful contributions from developers to the web3 system. As the industry matures, it is expected that the network effects of a given web3 system will increase, which should lead to an increase in the cut from its implicit incentives and thus increase the effectiveness of its explicit incentives.