Contemporary · Crypto · Essay

Why Decentralization Matters

Chris Dixon · 2018

"Decentralized crypto networks can beat centralized platforms by aligning incentives with users and developers."

The idea

Dixon observes a predictable lifecycle for centralized internet platforms: they start out open and generous toward developers, creators, and users in order to attract them and grow — but once a platform dominates its market (the top of what he calls the 'S-curve'), its relationship with those same developers, creators, and users tends to turn adversarial, since the platform now benefits more from extracting value from them than from continuing to court them. Decentralized cryptonetworks, he argues, avoid this by baking incentive alignment into the protocol itself via tokens, so there's no central company that can later flip from generous to extractive.

Why it works

The mechanism is about who can unilaterally change the rules. A centralized platform is owned and controlled by a company whose incentives can shift over time (often toward extracting more value from the ecosystem once it has captured a dominant position), and there's no recourse for developers or users besides leaving. A cryptonetwork's rules are enforced by open protocol and, often, token-based governance shared among many participants, meaning no single company can unilaterally decide to change the terms once everyone else is locked in — which, in theory, keeps the network's incentives aligned with its whole ecosystem indefinitely rather than just during its early growth phase.

The takeaway — recall it first

Check your understanding

According to Chris Dixon, why do centralized platforms tend to become adversarial toward the developers and users who helped them grow?

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