Blockchain technology and the associated market have gained enormous momentum over the past year. The explosive development and robust financing of ideas in this emerging industry has sparked a serious debate about the true value of the blockchain. Before implementing blockchain technology, managers, builders, and developers must ask themselves a question: “Why blockchain?”
What does a decentralized system require?
To understand how best to use blockchain technology, we must first define the basic requirements for trusting the system in question. Blockchain use cases often ignore this third-party issue, without even thinking about whether this use-case could be better implemented with a distributed or centralized alternative.
Decentralized System Criteria:
One plausible source of truth.
The system must receive input from two or more parties.
The two parties should not trust each other, so their interaction must be confirmed by a third party.
We must then decide whether a centralized third party or distributor can act as an alternative to the blockchain. Central third parties do more than just handle customer transactions. It provides ease of use of services and settlement of disputes. It keeps protocols up-to-date and ensures efficiency and ease of use. Distributorships have all the benefits listed above, but they are also more efficient. The hierarchical structure protects the central supervisor from being immersed in it.
Thus, by choosing a third-party distributor or centralized, many of the token distribution and management issues that plague modern blockchains can be avoided. You can avoid scalability, regulatory barriers and use a reliable and efficient third party.
This does not mean that the decentralized third parties are irrelevant. In some cases, a central third party cannot be trusted. This is the key to understanding the benefits of blockchain. If we can create a framework for understanding when (and why) centralized or distributed third parties should be avoided, then we can accurately predict when and why the blockchain will be adopted. In addition, we can avoid creating decentralized networks that naturally tend towards centralization, since they may have been better served initially by distributed third parties.
Three criteria for why you cannot trust a central third party
First criteria. One source of truth is required. The third party may not trust to mediate impartially between clients or parties due to a conflict of interest.
Sometimes third parties cannot remain neutral. The intentions of this third party may not be malicious; Only in the event of a conflict will their interests be taken care of first. We see this again and again with Facebook and other tech giants.
With the right incentives in place, decentralized management can change stakeholder engagement from a short-term, zero-reward game to a more cooperative, cautious, and long-term rewarding game for those who trade in the interests of society more broadly. A group of stakeholders, not just a person or a preferred group
The second criterion. It is a monopoly that prevents competition from protecting the interests of users. Interactions on the network require clarification and abstraction.
In the presence of competition, self-service or irresponsible behavior by a third party is severely limited by market forces. However, if there is no alternative, because the organization has a monopoly in the sector or there are resource limitations, then the strength of competition is less and the third party has almost no restrictions on its behavior. Apple’s control of the App Store is a compelling case for why the alleged goodwill of the central gatekeepers acted against the interests of the ecosystem they claim to support.
The third criterion. Fragility is a must. The stakes are very high, and the consequences of malicious third-party behavior would be catastrophic.
While the consequences of competition can punish malicious behavior, the cost of error cannot be prohibitive. Competition is a reactionary force that takes effect only after a mistake has been made. If a mistake cannot be made under any circumstances, preventive measures must be taken.
We see this reality reflected in the organization. Governments are pleased that free markets govern the water industry more than nuclear energy. Simple plumbing irritates a few customers, while a single nuclear failure is a disaster.