Decentralization & Automation: Imperative Tools For the New Financial System 🔧️🧰
The recent events surrounding FTX and Sam Bankman-Fried have been another firm reminder of the danger of centralized services, and the instability and insecurity that trusting individuals and institutions creates.
This article will explore the history & ideology behind the development of decentralized services and how automation is an important tool for a new financial system.
The collapse of FTX and Alameda will no doubt have a hurtful ripple across the blockchain and cryptocurrency ecosystems — as many treasuries and users have lost significant funds. But it also creates an opportunity for all of us to take a second, and evaluate what it is we want from Web3 and understand what we are all trying to build.
Blockchain & cryptocurrency encapsulates a hugely diverse range of technologies, products, and services nowadays. Even institutions and businesses that once publicly bashed the potential of BTC are now launching tokens and NFT’s. In some ways, it can feel like the ideology of the original digital currencies has been forgotten. But the importance of the ideologies and sentiments that drove the development of Satoshi’s original whitepaper are only growing larger in our modern, highly digital society.
The viewed weakness of the trust base model helps highlight a key sentiment that drove the development of decentralized services.
The current financial system was purposively and deliberately broken — and that we cannot trust others to build a better system.
So if it’s clear that not trusting institutions and centralized services was a founding principle of the development behind blockchains, then why do we see such prominence and popularity of centralized exchanges and custodial services? In many ways it’s because of how digital technology has evolved for convenience optimization above all else.
Convenience based software and technology
Digital technology has reshaped and disrupted entire sectors over a relatively short time period. Digital devices are ubiquitous across the world and software is used to maintain operations for essentially all industries including medicine, travel, dating, and entertainment. Almost all of us interact with technology for hours every day in professional and personal settings. The opportunities and freedom that technology has given to people have been powerful. But as users, we have regularly shown that as a population we value one attribute more than others when it comes to evaluating technology services — the attribute of convenience.
The importance of convenience is highlighted across many popular services and has been explored significantly in academic research. When peer-to-peer music providers like Napster and LimeWire rose to popularity, many music industry professionals argued that peer-to-peer music sharing platforms would kill the music industry, as people would no longer pay for or support music creators, who would pay for music when it could be downloaded for free? This criticism eventually ended up being proven wrong and unnecessary — as artists and music creators consistently cited that they saw increased record sales and popularity from their music being more accessible to people on platforms like Napster. Interesting user behavior was noted — people would find new artists they liked from downloading their music, then go out and purchase albums from retail stores. Whilst all these users could have downloaded most of these albums (and burned them to CD) for free, many users would purchase albums regardless, often stating convenience as the core factor in their decision making.
The value of convenience based technology is also evident within the current state of streaming services. Companies like Netflix, Amazon Prime Video, and Disney+ have grown to rival traditional television studios and channels. But with the advancement of internet infrastructure and speed, piracy streaming services have also grown. Many websites host unauthorized copies of essentially all of the up to date television shows and movies. While some users will refuse to use piracy for entertainment use on moral or ethical grounds, and other users are unable to use the services because they lack the technical literacy, the majority of users do not use these services because they do not reach the sufficient level of convenience and they refuse to learn how to use them. In many ways, I believe that this sentiment highlights why we consistently see so many people using centralized exchanges. We naturally evaluate technology based on the convenience it creates.
It’s almost like humans have an innate cost:convenience calculator in their minds when it comes to using technology.
Convenience has always been a key attribute when considering information security. Availability is one of the foundational principles of importance within cybersecurity — security solutions in which availability is too low and are inconvenient and are often ignored or circumvented and considered ineffective.
As users we have become accustomed to features like password recoveries and direct debit payments that value convenience over privacy, accuracy, and security. Most users would consider an app on their phone that lacks a way for a user to recover a forgotten password as unusable, but this way of thinking must be rejected when considering which blockchains and cryptocurrency platforms you as a user want to use and help build.
The Power of Automation & Decentralization
Blockchains and cryptocurrencies have seen a division from the ideology of the removal of trust at times, but the consistency of catastrophic events such as the FTX collapse will hopefully operate as a crossing of the Rubicon or point of no return that decentralization should be our number one consideration when building new products and when evaluating on-chain services. Companies and service providers that do not emphasize the importance of decentralization, the removal of trusted third parties, and fully transparent practices should be dislodged in the new financial system — even at the cost of convenience.
While the removal of trusted third parties may create a more difficult to use decentralized financial system — new infrastructure and products are being created to bring back levels of convenience that users expect from technology, but in a fully decentralized way. This is what our team at OAK Network is doing with our automation functionality. By allowing other parachains to use our chain to schedule future events and transactions we can create services like recurring payments without any party taking custody of keys or coins. OAK Network’s vision is to create a critical piece of what will become the new decentralized financial system. With many Polkadot parachains creating their own small piece of this system, Polkadot feels like the ecosystem that embodies the sentiment of a new decentralized financial system best.
There remains an incredible amount of work to be done to reach a fully functional decentralized new financial system and we will likely see more catastrophic failures on the path. But the failures will create resilience and act as reminders of the importance for the rebellion from centralized services.
If you want to learn more about OAK Network — check out our website below and be sure to join our Discord community.
