What is Decentralization, and why does it matter?

Many sectors in our world today are centrally planned, and therefore fall under the control of a concentrated group of actors. These parties make decisions impacting everyone in a top-down manner, but there is no accountability for misgivings secondary to:

• multiple layers of separation between action and downstream effects

• indirect and delayed feedback loops

• lack of punitive measures for (borderline) criminal behaviors

• misaligned incentives leading to coordination failures

Thus there is no skin in the game.

"Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions."

-Nassim Nicholas Taleb; Skin in the Game: Hidden Asymmetries in Daily Life.

As a result, the centralized systems governing our society are rigid, resistant to change, impervious to negative consequences, and function mainly to benefit the few at the expense of the majority. They are also riddled with rent-seeking middle-men behaving in ways that result in net value extraction. Much like a tumor that hoards resources for itself from surrounding tissues, centralized systems are incentivized to maximize profits at the expense of its constituents because they are ultimately beholden to their third party investors and shareholders. In many ways, these entities resemble a cancer.

These previously theoretical considerations are now practically applied through positive-sum tokenomics in Decentralized Finance (DeFi). Further reading can be found at the Ethereum Foundation.

In a nutshell, these are the comparisons between DeFi and TradFi (Traditional Finance):

DeFi is a trust-minimized, permission-less, censorship-resistant, and anti-fragile system. There is no bureaucracy in this decentralized system.

It is open for anyone with an internet connection and computing device to join. So anyone with access to a smart phone or computer with internet has a fair chance at unlocking, programming, creating, and adding value on a pathway towards financial independence and self-sovereignty.