Decentralization — Past, Presence, and Future


Part I: The Past

What is Decentralization?

Decentralized commerce may generically be defined as the global exchange of financial instruments, goods and services via emerging decentralized technologies. Starting with various experiments in electronic cash, such as DigiCash, among others, the emergence of the Bitcoin protocol in 2009, the digital asset market is a market for investment opportunities in virtual assets. Stock is not inherently digital as it has strong ties to the real world. By contrast, Bitcoin is a purely digital asset because it only exists in the virtual world. Narrowly construed, digital assets are instantiated through computer code and depend on so-called “consensus computer algorithms” to trigger and validate a transaction in a given digital asset. Broadly construed, digital assets can include video games in the broadest sense and items sold in video games can be digital assets without a consensus algorithm that validates the transaction or provides a level of security.

Types of Decentralization

The evolving technological decentralization, in turn, has created new markets and continues to change existing markets. For instance, with the emergence of the Bitcoin protocol in 2009, the digital asset market began to evolve. Until the creation of the first known alt-coin (e.g. an alternative coin to Bitcoin) around April 15, 2011, Bitcoin virtually dominated the market and was in fact the only digital asset. Between 2017 and 2019, the alt-coin market proliferated significantly. Correspondingly, from 2016 to 2017, Bitcoin’s market share dropped dramatically. At the end of 2014, with the instantiation of smart contracting in the Ethereum ecosystem and the ETH currency, the market for digital assets started to diversify and proliferate substantially. New alt-coins emerged almost weekly, leading to over 2000 crytocurrencies in circulation in late 2018.

Such new cryptocurrencies created a new market for initial coin offerings (ICOs). The ICO market peaked from March 2018 to June 2018. The percentage of ICOs in relation to total fundraising of blockchain startups dropped from 80% to around 35% in August 2018 and only marginally recovered between September 2018 and February 2019 at around 40% to 50% before dropping to 20% in March 2019. From March 2017 to June 2018, ICOs were the overwhelmingly dominant fundraising tool for the blockchain industry. The demise of the ICO market turned the overall trend away from ICO funding to venture funding in the blockchain industry.

The emergence of the ICO market changed the market for venture funding. In the existing venture capital model, venture capital funds invest significant amounts of money in the hope of finding the next unicorn start-up. This investment process is subject to long, complex, and time intensive processes leading up to a late liquidity event in the form of an IPO or acquisition. By contrast, ICOs provide liquidity to investors much faster and allow venture capital funds to capitalize on existing profits early. Venture capital funds who invested in crypto start-ups gain access to much earlier liquidity via ICOs by converting their cryptocurrency profits into Bitcoin or Ether through any of the cryptocurrency exchanges and can thereafter transfer into fiat currencies via online services such as Coinsbank or Coinbase. During the ICO boom years, the venture capital market in the decentralized technology sector ground to a halt. In the aftermath of the ICO boom and collapse, venture funding has become, again, the predominant model for funding blockchain startups.

How We Got This Far

Part 2: The Presence

The Brave New World of Decentralization

Decentralization Neutralizers

Unleashing the Power of Decentralization

Part 3: The Future

How to Make Money in Decentralization

Responsible Decentralization



Professor, Emerging Technology Strategist

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