On the topic of decentralization

The problem of abuse of trust

The primary reason the cryptocurrency space was born was to solve this problem:

When Satoshi says “trusted third party” here, he’s not just referring to banks, who often abuse our trust:

Abuses of trust come in many shapes, usually from those in positions of power.

For the purposes of this thread, I will be generalizing “trusted third party” to primarily refer to those in charge of the governance of a ledger.

With great power, comes great abuses of power

It appears to me that a majority of the projects in this space do not yet understand the problem that Satoshi was trying to solve. Yes, Satoshi built a distributed ledger… but the underlying problem he was trying to solve is much bigger than that: he was trying to solve abuses of trust by those few who have leverage over large numbers of people.

Hence the emphasis on decentralization, power to the people, etc.

Right now, in the real world, it’s really hard to democratically contribute to the decisions of a given country’s Federal Reserve. You have to become a politician, move to the best geographical locations where you can meet the right people, etc. In short: there are huge obstacles for 99.9% of people.

As such, in most countries, the people’s currency is managed by a tiny group of people, who do whatever they want behind closed doors, and typically get away with it, as there is no one there in the room to question them. As a result, we’ve accumulated insane amounts of debt, devalued our currencies, and destroyed the lives of many people whose concerns were never heard.

Cryptocurrencies, by virtue of their digital nature (not bound by geographic barriers) could offer a solution to this problem, but only if governed transparently and in decentralized fashion.

A distributed ledger that is governed by a non-democratic corporation doesn’t solve the problem in any way.

Forking is not the solution

Having the ability to fork these ledgers is helpful, but it doesn’t solve the problem either, because it is still a very disruptive process, akin to revolutions or war in the real world - except, instead of being subject to violence, people get their finances destroyed instead.

Unfortunately, Satoshi either didn’t have time, or did not understand the underlying problem well enough at the time to be able to provide us with the vision and tools for how to build these democratic institutions in the digital realm.

DAOs will hopefully finally bring us the answer.

Turning IOTA from company stock into The People’s Money

There are two things that I think are core to this space and that we have to do, eventually.

1. Decentralization of the network itself

Right now, as we all know, we have a single point of failure in the network. I don’t have to go into detail on this, as we’re all familiar with this problem. Coordicide is an attempt at solving it, and we seem to be making headway.

2. Decentralization of the network’s governance

Today, the IOTA network is governed by a centralized organization called the IOTA Foundation. For all practical purposes, the IF is the IOTA protocol’s Federal Reserve.

A quick history lesson reveals that centralized organizations are more effective than decentralized ones. Just look at governments. Dictatorships can implement change much faster than democracies. Nevertheless, we must strive to decentralize the governance of our protocol, because although we may have a benevolent dictator today, that might no longer be the case tomorrow.

Understanding power

Whenever you’re in charge, you have leverage on people. That is what’s called having power. You have access to the metaphorical nuclear codes. We saw what happened when CFB had access to the nuclear codes and decided to nuke everyone. He destroyed the finances of thousands of people by being irresponsible.

So, no matter how hard we try to create the friendliest or most inclusive environment ever, there will always be an element of leverage and trust that’s required.

To minimize damage to people’s lives, in the real world, we’ve invented democratic systems that allow us to rotate who gets to have leverage for a short period of time.

Currently, for the governance of IOTA, we don’t even seem to have the most basic of security measures, like for example: limitations on how long someone can serve on the IF Board of Directors, or mechanisms by which we can rotate who’s in charge. Even IGDA and other traditional non-profits outside of DLT are more decentralized than the IF…

So adding some of those things will be a great first step on the road to the full decentralization of IOTA.

Decentralized governance

Now, I don’t think it is realistic to say that everyone should be on equal footing when it comes to governance. In fact, we have overwhelming evidence as to why this doesn’t work. History has taught us (over and over again) that we should be appointing experts, who then should have a final say on things related to their domain, not the wider public.

So the next question we have to ask ourselves is: how do we create more experts? The answer, I believe, is more transparency and greater access to education.

Tear down the walled garden

Right now, the IOTA community lacks a lot of context. We’re treated like peasants outside the castle gates. We have no clue as to what is being done or discussed behind IF closed doors. Even muXxer, who is a decentralization champion, eventually felt compelled to join the IF (as many others have, as well), because he probably recognized it was the easiest way to unlock access to expert discussions & make the quickest progress.

Imho, when that starts happening, we need to start pumping the brakes and ask ourselves: why are people joining the IF instead of just building in the community?

There are many variables, of course, and they’re probably complex, but in the end it all boils down to one simple answer: incentives.

First, like I said, the only real way to unlock full expert context at the moment is to join the IF. The #tanglemath channel on IOTA’s Discord is not the same as whatever secret research channel there is currently at the IF. This immediately puts the community at a competing disadvantage.

Secondly: there are currently no channels in the community for obtaining a stable and reliable income while working on IOTA. We have some grant programs (EDF, Touchpoint) but none of that is the same. At the IF, people don’t have to worry about losing their stable income if their research or product flops. In the community, we do have to worry about that.

Those things (and probably others) combined make it almost virtually impossible for anyone in the community to generate any serious momentum capable of “outcompeting” the IF.

It’s not the case that the community wants the IF to be doing all the work. We literally just don’t have access to the same incentives & perks that are made available to IF employees.

Imagine if the community had not donated a % of the initial token supply to fund the early IF. Would the IF have had built any of the things that we have now?

Let’s end the monopolistic behavior

Great community projects (e.g. Hornet) have been gobbled up by the IF as a result of the incentives I laid out above. Someone offered the counter-argument that by the time you’re spending your full-time working on IOTA, it makes perfect sense to join the IF, as you don’t have to bother with filing your own taxes, and so on.

That is perfectly valid, and part of the reason centralized orgs are more effective than decentralized ones. But we can probably recreate those same perks and incentives in decentralized fashion. The only reason people at the IF don’t have to worry about taxes is because they have a department who does it for them. So we could, in theory, build a DAO that is in charge of doing that kind of stuff for other community DAOs.

Naturally, this type of idea would require a lot more thinking, research and execution, which I am unequipped to offer right now. For now, I am just asking for the help of everyone else in acknowledging that this is indeed a problem we should be thinking about, and trying to solve going forward.

Basically: we need to formalize & establish stronger incentive loops in the community, that can compete with the incentives & perks currently provided by the IF. Remember: the world runs on incentives & game theory. This is why good tokenomics work for pumping token prices. So now let’s ask ourselves… is there anything we can do to establish stronger incentives in the community?

I believe it is the IOTA Foundation’s responsibility to help the community in this regard.

We’re building a digital country, not an online videogame

Here’s the bottom line: why are we running this community like it’s a World of Warcraft server? I find this very odd. There should not be a secret room where people have secret discussions about what to release in future patches. Why is the community kept in the dark about future developments?

We’re building a digital country here. It needs to be ran like a government (except better). Full (or close to full) transparency.

Have you ever seen those live sessions on TV where politicians in parliament shout their ideas to one another and so on? There’s a reason we have those sessions on TV. We need some of those but for IOTA.

Imho, the IF slack/private channels should only exist to discuss partnership projects (e.g. EBSI, Intel, and other stuff which are under NDA), i.e. things that have nothing to do with development and research of the core protocol & its core solutions.

Research and development should all be happening 100% in public imo, on equal footing with the wider community. That includes sharing designs we’re unsure of, half-baked ideas, and so on. If the research team ever gets stuck on a problem without a solution, we need to know in real-time. We shouldn’t worry about a tiny minority of people who will create FUD when we acknowledge that we have a problem and don’t know the answer to it. We’re researchers, it’s totally natural. Being more transparent will pay dividends.

No one worth paying attention to is gonna judge people at the IF for occasionally saying silly things in public, or demonstrating that you don’t have a solution to a problem and are trying to figure it out. This is how research & solving hard problems works. If you treat the community like children who can’t handle the truth, you’ll only attract children who can’t handle the truth to the community.

Final thoughts

My goal with this discussion is not to try to force these changes overnight. For now, I just want to slowly start building momentum. Convince 1 or 2 folks at the IF of the importance of this. Then 5. Then 50. Then eventually (hopefully), all 200. It’s ok if it takes us a year to apply this. Change sometimes happens slowly, but I believe this is important.

We need to seriously start thinking about decentralization - and I don’t mean Coordicide. We have to start phasing out those secret research & development channels starting next year. Let’s make it our 2022 resolution. Happy new year everyone, and thank you for taking the time to read this!

P.S.: I have plenty of concrete suggestions for how to apply this. Once we all agree that this is something we should strive to achieve, I can offer actionable steps.



I thought it would be possible to keep editing my original post forever (and therefore improve the way in which I articulate my message), but it seems like there’s a limit on how often or for how long I can edit posts here. So instead, I will add a subsequent reply to this thread.

I am typing this from my stream of consciousness, so please forgive me for the occasional poorly structured sentence, or poor choice of words. Please focus on the underlying message, not the compression algorithms I picked to convey it. I don’t currently have the combination of time and skill to craft a more concise, meticulous, and effective way of conveying this message.

Identifying the Hardest Research Problem in the Cryptocurrency Space

Why are we exploring these new methods of accounting & voting protocols? Who created the first cryptocurrencies, and what led them to do it? What was the core problem that these new solutions were invented to solve?

This line of questioning is otherwise known as reasoning from first principles, and it is the most effective framework we can use to identify & overcome hard problems.

The Creation of Bitcoin

Bitcoin is valuable today because the problems it attempted to solve resonated with many people around the world, and because it introduced functionality that is superior (in some respects) to government-issued currencies.

If we look at why Bitcoin was invented, we can pinpoint many reasons that were explicitly stated by Satoshi:

  • Fiat currencies are no longer backed by physical assets (e.g. gold, or other materials with real world utility) but rather trust in governments. Trust can be (and often is) abused, whereas the laws of physics cannot.
  • It’s hard for people to store their wealth, because physical assets (e.g. gold, dollar bills) require physical storage, which most people don’t have an abundance of. Plus, they’re hard to transport. So we trust middlemen to store & transport our wealth (banks, etc) who then abuse our trust.
  • Etc.

In short: Satoshi created Bitcoin because he was rightly frustrated with the abuses of trust we see in the real world by the minority who are granted influence (and therefore control) over the finances of the majority. The old saying still rings true: whoever controls the food supply, controls the people; whoever controls the energy supply, controls productivity; and whoever controls the currency supply, controls everyone. This is true because currency is what we use for resource allocation and exchange of value.

I will not go into what value is, and how it’s created, but there’s many resources out there that explain it.

If you keep going down the rabbit hole, it becomes quite clear why the price of certain cryptocurrencies is what it is today, and what we have to do in order for them to become more valuable in the future. We have a ton of unaddressed research problems still, including the one that kickstarted this whole space.

Subjectivity Demands Governance

For all their brilliance, these distributed voting protocols are not purely objective. There are several variables in them that are purely subjective. Here are just a few examples:

  • The Bitcoin block size limit;
  • The variables associated with Mana generation and so on in IOTA v2;
  • The rules by which the initial supply of the currency is distributed;
  • The rules by which the total supply is adjusted over time.
  • Etc.

Every time we have a subjective variable in a voting protocol (either in DLT, or in the real world), we need transparent systems of governance for how to appoint experts who can change and tweak those variables.

It is debatable whether forking a protocol is the optimal solution that we should be sticking with long-term (see the section called “A Word of Caution” at the bottom of this post). When change requires a disruptive event, change becomes very costly and thus, incumbents become very hard to dethrone.

We therefore have to put more thought into this problem of how to govern subjective variables/algorithms in the digital realm.

Dealing with Subjectivity in the Real World

Philosophers have been thinking about this problem for millennia, and as a result, we’ve designed & built entire democratic systems that attempt to solve it. Although they’re not perfect, they’re the best we’ve invented so far. So we should look at them for inspiration, and perhaps even use them as a first draft that we can later rapidly iterate on.

Bitcoin vs. Fiat Currencies

Although Bitcoin was invented to solve the problem of abuses of trust in finance, it still hasn’t solved it. Put simply: the governance of Bitcoin is arguably less transparent and democratic than that of the Federal Reserve (which is an achievement in and of itself).

Today, in the real world, I know exactly who the face of the Federal Reserve is, and I know more or less how to go about joining it. I’d have to become an economist & politician, then get appointed by a President or other government body who is elected democratically (via ID-based voting) by the people, etc.

It varies from country to country, of course, but generally speaking, if you live in a democracy, the rules are mostly clear and mostly transparent. We have official channels, and then rotate who is in charge of those official channels from time to time.

Official channels are an important tool for creating transparency. We can’t have 60 different “official” Twitter accounts for IOTA, for example. We need to have one official channel, i.e. one source of common truth, and then rotate who’s in charge of it from time to time, so that no single individual (or group of individuals) end up with too much influence and power.

Now, I think most people would agree that we can probably come up with superior systems and sets of rules for how to govern a currency’s subjective variables & official channels.

Cryptocurrencies, by virtue of their digital nature (not bound by geography, and anchored in code, which is less corruptible than people), offer some glimmer of hope, but not in the state we see them today.

Understanding the Value of Cryptocurrencies

Price is roughly a function of cost + true utility + speculative utility. Bitcoins are expensive to create, therefore they’re expensive to buy. Plus they have true utility + some speculative utility.

It is easy to jump to conclusions and say that cryptocurrencies today are mostly speculative (and that the prices we see are just a bubble), but that is not true at all.

I have family and friends in countries where the national currency is worthless on the global stage. Cryptocurrencies, which are digital, provide a shared global playing field - and that has a lot of utility. Bitcoin is worth the exact same amount of USD regardless of whether you live in the US or in Angola. Unlike the USD, however, Bitcoins can be created permisionlessly around the world (by validating the blockchain).

The reason we don’t see more adoption is because of technical constraints (e.g. L1 Bitcoin can’t be used to buy a coffee anymore, as a result of fees; plus it has a slow time to finality, and so on), and because the core problem Satoshi wanted to solve still remains to this day: how do we provide a currency solution whose subjective variables can be governed transparently, democratically, and in a more equitable way than the currencies we already have in the real world?

I would encourage everyone to further think about this problem and how we can solve it.

A Word of Caution

Allow me to conclude with the following. Relationships are built on compromise. If we do not invent ways for us to work together in the digital realm and just stick to forking our voting protocols (or shared platforms and ecosystems) every time we need change, these digital economies will eventually lead to nowhere (or worse: new, lasting systems of oppression).

Remember social media? In some ways, it’s amazing: it allows us to connect with people from all over the world, and discover new ideas. But it also introduced huge new problems. Their subjective algorithms are governed by opaque organizations, and the users have no democratic means of rotating who’s in charge of the rights to make changes - just like it is the case today for every cryptocurrency. There’s a reason we’ve invented term limits for Presidents and most other bodies of government. Even the best Presidents ever (again, this is all subjective) can only spend a limited time in office (because we recognize that this is all subjective).

I can imagine a future, not long from now (let’s say, 10 years) where cryptocurrencies are just as oppressive as social media - especially once people start building entire businesses on top of these networks. We cannot build “decentralized” ecosystems that are governed by a select few in permanent positions of power - regardless of whether those select few are bound to the law in their jurisdiction. Facebook and other platforms are lawful, yet their algorithms are corroding our democracies, and it’s very hard to stop them.

Yes, I can fork these open source protocols, but in doing so, I cannot get the adoption they already have. In simpler terms: my fork of Bitcoin is not gonna be automatically listed on Coinbase and every other exchange in the world. So I don’t really consider forking to be a solution.

We cannot just keep on building technology without considering the negative implications we’ll have on generations of people to come. Please, let’s use some foresight.

I am on vacation, and this isn’t even my main field of research, yet I’m still here posting this lengthy message because I believe it is extremely important. When something is important enough, we have to address it with urgency.

In summary, what I am suggesting is that we start laying down the foundation for a transparent digital democracy.

If no one else is doing it, we have to be the ones leading the way. We have the insights, vision and tools to start addressing the problem today. Let’s do it, and others will follow!

1 Like