Innovative Trends in Decentralization

With the growth of blockchain, several ideas have emerged that make use of the decentralized property of blockchain to provide more user centric and fully decentralized services.

 

Some of the key trends or ideas in decentralization are decentralized web, decentralized identity, and decentralized finance.

 

Decentralized Web

Decentralized web is a term that’s used to describe a vision of the web where no central authority or set of authorities will be in control.

 

The original intention of the Internet was indeed decentralized, and the development of open protocols such HTTP, SMTP, and DNS meant that any individual could use these protocols freely, and immediately become part of the Internet.

 

This is still true; however, with the emergence of a layer above these protocols called the Web layer introduced a more service-oriented infrastructure, which inevitably led to large profit-seeking companies taking over.

 

This is evident from the rise of Facebook, Google, Twitter, and Amazon, which of course provide excellent user services but at the cost of a more controlled, centralized, and closed system.

 

With blockchain, it is envisioned that this situation will change as it will allow development of the decentralized Internet, or the decentralized web, or Web 3 for short, which was the original intention of the Internet.

 

We can review the evolution of the Web over the last few decades by dividing the major developments into three key stages, Web 1, Web 2, and Web 3.

 

Web 1

This is the original World Wide Web, which was developed in 1989. This was the era when static web pages were hosted on servers and usually only allowed read actions from a user’s point of view.

 

Web 2

This is the era when more service-oriented and web-hosted applications started to emerge. E-commerce websites, social networking, social media, blogs, multimedia sharing, mash-ups, and web applications are the main features of this period.

 

The current Web is Web 2, and even though we have a richer and more interactive Internet, all of these services are still centralized.

 

Common examples of centralized Web 2 services include Twitter, Facebook, Google Docs, and email services such Gmail and Hotmail.

 

Web 3

This is the vision of the decentralized internet or web that will revolutionize the way we use the internet today.

 

This is the era that will be fully user-centric and decentralized without any single authority or a large organization or internet company in control.

 

Some examples of Web 3 are as follows:

• Steemit: This is a social media platform based on the Steem blockchain and STEEM cryptocurrency. This cryptocurrency is awarded to contributors for the content they have shared, and the more votes they get, the more tokens they earn.

 

• Status: This is a decentralized multipurpose communication platform providing secure and private communication.

 

• IPFS: This is a peer-to-peer hypermedia/storage protocol that allows storage and sharing of data in a decentralized fashion across a peer-to-peer network.

 

Other fast-growing trends include decentralized identity and decentralized finance.

 

Decentralized Identity

Identity is a sensitive and difficult problem to solve. Currently, due to the dominance of large Internet companies and other similar organizations, the identity of a user is not in control of the identity holder and this often leads to privacy issues.

 

Decentralized identity gives control of identity credentials back to identity holders and enables them to control when and how they share their credentials and with whom.

 

A prime example of such an initiative is that Microsoft has built a decentralized identity network called Identity Overlay Network (ION) on top of Bitcoin blockchain.

 

This infrastructure is based on work done for decentralized identity at W3C and the Decentralized Identity Foundation. Similar initiatives have also been taken by IBM and other organizations around the world.

 

Decentralized Finance (DeFi)

DeFi could be the killer app of the decentralized revolution that everyone has been waiting for.

 

Traditionally, finance is a business that is almost impossible to do without the involvement of a trusted third party.

 

It can either be a bank or some other financial firm; consumers have to trust a central authority to do business on their behalf and provide the services.

 

Some of the disadvantages of this centralized approach are:

• Access barrier: Access to financial services and banking requires a rigorous onboarding process involving KYC and other relevant checks and procedures.

 

• High cost: Financial services can be costly in some scenarios, especially investment related activities, and could be seen as a barrier toward entering the financial services industry.

 

• Transparency issues: There are concerns around transparency and trust due to the proprietary nature of the financial industry.

 

• Siloed: Most current financial industry solutions are proprietary and are owned by their respective organization. This results in interoperability issues where systems from one organization are unable to talk with another.

 

DeFi comes with a number of advantages, such as inclusion, easy access, and cheaper services; however, it has its own challenges.

 

These drawbacks must be addressed for further adoption of this novel paradigm of financial services:

• Underdeveloped ecosystem: This ecosystem is still developing and requires more effort to improve usability and adoption.

 

• Too technical: As some users may find understanding and handling all financial transactions and jargon a bit daunting, adopting a DeFi platform may take some time and educational effort.

 

• Lack of regulation: This is a genuine and clear concern because without the existence of any regulatory framework, this ecosystem can be used for illegal activities.

 

• Human error: On a blockchain, human errors can result in serious implications. Especially on DeFi systems or cryptocurrency blockchains, any human negligence can result in serious implications, such as financial loss.