Editor's Note: This article comes fromMengyan Finance (ID: Meng-eyes), reprinted by Odaily with authorization.
Editor's Note: This article comes from
Mengyan Finance (ID: Meng-eyes)
Mengyan Finance (ID: Meng-eyes)
, reprinted by Odaily with authorization.Performing a cost-benefit analysis of implementing distributed ledger technology (DLT) is critical for managers, entrepreneurs, and builders working on blockchain.Blockchain technology and its associated markets have gained tremendous momentum over the past year. The tremendous development and active funding of ideas throughout this nascent industry has sparked some serious discussions about the true value of blockchain. Before implementing blockchain technology, managers, builders, and developers need to ask themselves the question, "Why use blockchain?"Why build a decentralized system?In order to understand how best to employ blockchain technology, we must first define the trust assumptions in the system under consideration. Too often, blockchain use cases ignore the issue of third parties without considering whether the use case would be better served using a distributed or centralized alternative.Criteria for a decentralized system:1) Unified acceptance of a single source of truth.2) The system must accept input from two or more parties.
3) The parties must distrust each other, therefore, their interactions must be authenticated by a third party.
Next, we must determine whether centralized or distributed third parties can replace blockchain services. Centralized third parties don’t just manage transactions for clients, they also provide availability services and manage disputes. Additionally, they update the protocol and ensure the protocol remains efficient and usable. Distributed intermediaries also have all the advantages above, but they are also more efficient, and the hierarchical structure prevents the central from being overwhelmed.Thus, by choosing a distributed or centralized third party, not only can you avoid a host of token distribution and governance issues that plague modern blockchains, you can also avoid scalability challenges and regulatory hurdles, and leverage a reliable and productive third party.However, this does not mean that decentralized third parties are irrelevant. In some cases, centralized third parties simply cannot be trusted, and this is the key to understanding the benefits of blockchain. If we can develop a framework to understand when (and why) centralized or distributed third parties should be avoided, then we can accurately predict when and why blockchain should be embraced. Furthermore, we can avoid creating a decentralized network with a natural migration towards centralization, given that a distributed third party may better serve the distributed network in the first place.Three Criteria for Untrustworthy Centralized Third Partiesfirst criterion. There needs to be a single source of truth. A third party cannot mediate impartially between clients or parties due to a conflict of interest.Sometimes third parties fail to be impartial. The intentions of such third parties may not be malicious, but in the event of a conflict, they will serve their own interests first. We see this time and time again with Facebook and other tech giants.With the right incentives, decentralized governance can transform stakeholder interactions from a zero-sum short-term game of tit-for-tat to a more collaborative and thoughtful long-term game, rewarding those who work for the wider stakeholder. One who acts in the best interest of the individual, rather than any one preferred individual or group.Second standard. Monopoly hinders competition and fails to protect the best interests of users. Interactions in the web need refinement and abstraction.As long as competition exists, market forces strongly discourage selfish or irresponsible behavior by third parties. But if there are no alternatives because of one entity's monopoly on the industry or because of resource constraints, then the forces of competition collapse and the behavior of third parties is largely unchecked. Apple’s control of the App Store is a powerful example of why the perceived benevolence of centralized gatekeepers can be at odds with the best interests of the ecosystems they claim to support.The third criterion. Antifragility is a must. The stakes are too high, and the consequences of a malicious third party act would be catastrophic.
Even if the effects of competition can punish malicious behavior, the cost of an error cannot be too high. Competition is a reactionary force that only comes into effect after a mistake has been made. If such errors cannot be tolerated under any circumstances, pre-emptive measures must be taken.
This reality is reflected in regulation. Governments, for example, are more willing to let the free market regulate the pipeline industry than the nuclear energy industry. Because shoddy plumbing only leads to a few angry customers, whereas a nuclear accident is catastrophic.As the world and every aspect of our lives moves online, there is a growing recognition that over-optimization can lead to fragility, and we need to build stronger infrastructure for essential digital services so that, ideally, these It can become an anti-fragile system. Blockchain has the potential to be the backbone of an anti-fragile system, as it not only survives adversarial environments, but grows stronger block-by-block from each challenge.The above criteria help us identify promising blockchain use cases.
Which blockchain use cases are ready?
Banking, markets and other elements of the financial industry generally require third-party management to guard against counterparty risk. This situation calls for an impartial third party capable of managing and assessing financial risks. The role of decentralization is to mitigate this counterparty risk by acting as a third party, adjusting the incentive mechanism between market makers and users, spreading risk across the platform, and greatly reducing the possibility of system default. The extraordinary growth of the entire DeFi ecosystem is a powerful example of the disruptive nature of blockchain and the successful implementation of decentralization in high-value systems.Some use cases present promising opportunities for decentralization, but require a range of technologies to truly benefit a particular value chain. A strong example is supply chain, a mature super industry that can be disrupted by blockchain-powered solutions and products. They are highly collaborative environments with a low tolerance for error. Especially for high-risk goods like pharmaceuticals or even fresh meat, proper shipping and supply chain tracking are critical. The same is true for high-value supply chains such as diamonds and fine art, as the availability of inputs can vary enormously for different parties across the value chain.
