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The essence of blockchain is,A16z: Web3, decentralized framework, principles and patterns (no deleted version)

Time : 25/03/2022 Author : 6n2fzp Click : + -
        Although there are many examples of effective decentralized political system, culture and business in history, the main view of decentralization is that it is inherently fragile when facing the utilitarian effectiveness of centralization. The reason is simple and intuitive. In terms of clarity of decision-making, one voice is more effective than many voices. When formulating laws, products, strategies and infrastructure, a unified vision and a clear division of power are powerful tools because they can avoid duplication of work and use creative vision to achieve common goals. In contrast, decentralization requires communication and compromise. In a centralized system, the objector may not like the decision already made, while in a decentralized system, the objector may not be able to make a decision at all.
        Therefore, the decentralized system has always been considered as a local, small-scale or regional solution: when considering a large number of decision makers, geographical location and the ability to communicate effectively, decentralization will bring obstacles that do not exist in centralization. Unfortunately, the efficiency and stability of centralization come at a price. When control is in the hands of a few people, the violation of personal freedom, choice and privacy is inherent. We have seen that this reality has shaped the Internet. The basic value of this tool lies in the network (connection) it supports. The open and decentralized protocols that initially created these networks in web1 have long been surpassed by the complex products and services created and controlled by the centralized operators.
        This trade-off may have been necessary because such products and services are built from scratch using proprietary technology that requires a lot of money to develop and proprietary systems to protect. However, technological progress rarely stagnates, and any benefits of these tradeoffs become increasingly expensive. The development of programmable blockchain, composable smart contracts and digital assets provides us with opportunities to create new paradigms. Although these technological advances can not solve the problem of collective decision-making, they are a powerful coordination tool. More importantly, they provide builders with the tools needed to create a decentralized digital infrastructure that can be generated and supported by a strong decentralized economy.
        Based on this decentralized and shared infrastructure, we can build products and services that are comparable to or even better than those of today's centralized system, and ultimately ensure our basic freedom. It started from a single decentralized blockchain network, developed into a decentralized product and service called "defi", and is now expanding to the Internet that will be built on the decentralized infrastructure. Although the concept of Web3 has just begun to take shape, its success depends on whether it can provide the benefits of self empowerment brought by decentralization. Please note that this includes more equitable ownership among stakeholders, less censorship and greater diversity.
        As Web3 begins to disintegrate the increasingly complex web2 products and services, it is necessary to deepen our understanding of the core tenets of decentralization in order to apply them to these more complex systems. In the process of promoting this goal, we can gain a lot of insights by studying the successful decentralized blockchain networks and smart contract protocols (which open the way to decentralization) and the technological, economic and legal development accompanying the growth of Web3. This paper aims to provide Web3 builders, observers and new entrants with a broader understanding of decentralization, including its challenges and prospects. It consists of three parts:. Few topics in Web3 can be as extensive as decentralization, so it is very important to discuss its role in Web3 system from a framework.
        As a structure, decentralization is an abstract term because its meaning is based on the comparison with centralization and the degree to which decision-making is far away from the centralization mechanism. Without further exploration, decentralization is only a measure of the degree of centralization of any process. Subsidiarity is a concept included in decentralization, which indicates that decisions should be made in the most decentralized way that is still effective. This principle aims to find a balance between collaboration and integrated decision-making (which inherits the efficiency and unity inherent in centralized decision-making).
        Although some systems are always the most suitable for centralization, we hope that the dissemination of programmable blockchain and smart contract protocols can provide a powerful and efficient decentralized system on which decentralized and centralized products and services can be built. The effectiveness of these decentralized Web3 systems will depend on their security, economy and information symmetry. Therefore, our analysis focuses on decentralization in the context of Web3 and divides it into three different categories for further application. Technical Centralization & mdash& mdash; It mainly involves the security of the Web3 system. Fundamentally speaking, the decentralized blockchain and smart contract protocol provide a verifiable ecosystem without permission, and Web3 products and services can be built on the ecosystem without trusted centralized intermediaries.
        Economic centralization & mdash& mdash; The emergence of programmable blockchain (such as Ethereum) and digital assets, which are mainly related to the economy of Web3 system, has opened the possibility of decentralized systems. These systems have their own decentralized economy, including the accumulation (or loss) of trade, services and wealth. Centralization in Law & mdash& mdash; It is mainly related to the legitimacy of the Web3 system. Decentralization has an impact on a wide range of legal issues, including taxation, liability, ownership, intellectual property, reporting and privacy. However, we focus on the intersection of decentralization and U.S. Securities Law, which is crucial to understand how a decentralized system utilizes digital assets.
        The interaction between these categories is significant, and the limitations of one category directly affect other categories. I therefore, the three elements of decentralization should be considered as a single design challenge, and technological decentralization provides the basis for economic and legal decentralization. In view of the complexity of the relationship between economic and legal decentralization, this paper provides an additional background for economic and legal decentralization, and then analyzes the relationship between them. One of the main advantages of Web3 systems is that they promote the formation of decentralized economies, which are autonomous free market economies that are not controlled by any central authority. These economies have realized self regulated capitalism, accumulating value from a wide range of sources (such as information, economic value, voting rights, etc.) and distributing it fairly to the stakeholders of such systems.
        The Web3 system initially achieved this by giving its stakeholders meaningful power, control and ownership (through airdrop, other token distribution, decentralized governance, etc.) and maintained it by balancing the incentives of these stakeholders. Although the lack of centralized control means that the organizational efficiency of decentralized systems is generally lower than that of centralized systems, it also means that they are not dependent on or subject to the abilities, powers or practices of individuals or leading groups. III this structure encourages stakeholders to contribute meaningful value by providing them with ways to treat and reward their contributions. For example, it frees developers from the worries they often encounter when building products in web2. For example, the company side can change the rules of the platform they control at any time, as long as it is in the interests of the company.
        The incentive balance among the stakeholders of Web3 systems (including developers, contributors and consumers) will further promote the value contribution of such systems to benefit the community and builders. Compare this with the central control economy of the web2 system, which relies on the concentration of power and hierarchical decision-making and execution to promote value. Although this structure can be efficient, this efficiency needs to pay a huge price. Centralized systems are not only constrained by the practices and capabilities of those who control them (including officials, directors, shareholders, interest groups, regulatory bodies and governments), but also they are usually focused on maximizing returns for these controlling parties, thereby harming the interests of users, including contributors and other non centralized stakeholders.
        In web2, this is demonstrated by the priority of exclusive and closed systems, which require users to sacrifice ownership and autonomy of their digital world (Social Media posts, followers and photos, media licenses, applications, etc., all of which are locked in these systems). In addition, the powerful status of many centralized platforms enables them to use their proprietary systems to impose their agreements on users and apply ultra-high rates, thus inhibiting innovation and creation on these platforms, and ultimately promoting the development of web2 towards a more homogeneous direction. In addition, as these platforms continue to pursue growth, they will improve efficiency and gain greater value from users, not just from their contributions.
        In essence, many web2 platforms actively use monitoring, content management and data collection to transform their users into a product that is often sold continuously without their knowledge (i.e., an advertising based revenue model). Therefore, we see that the web2 social media platform maximizes participation by using algorithms that amplify sensational content. At the same time, we can imagine a Web3 social media platform that is not bound by the business model of web2, and can freely explore more prudent and diversified content and participation methods. Comparing Ethereum blockchain with various web2 systems, you can see a real example of the dichotomy between Decentralized Economy and centralized economy.
        Ethereum is a decentralized programmable blockchain, on which hundreds of smart contract protocols and applications are built and deployed, without any license, and no central agency charges any fees. As of the beginning of 2022, the decentralized financial agreement based on Ethereum has accumulated more than $150 billion in deposits, and the total purchase of NFT (i.e. digital property) in 2021 exceeded $17 billion. The willingness of developers to build these protocols and the willingness of users to invest money and acquire assets on Ethereum are not driven by trust in Ethereum or its protocols, but by the fact that decentralization completely eliminates the need for trust.
        No central organization can change the operating rules of Ethereum or those decentralized protocols, and no individual can control the tokens or NFT of consumers. In addition, cross chain infrastructure will enable all these digital assets to be transplanted to other blockchains, so that users' digital assets can be transferred to other ecosystems. At the same time, many of the most famous web2 platforms have adopted super high rates (from 30% to 100%) for developers, artists, musicians, content contributors, local businesses and part-time economic workers to make their ecosystems profitable. Their proprietary systems often do not allow contributors or consumers to easily transfer their contributions, purchases, preferences or data to other systems, and we increasingly see stakeholders being de platform.
        Therefore, developers, contributors and consumers are forced to trust these platforms, not only to continue to develop and operate the products and services that consumers want, but also to do so without increasing costs or arbitrarily canceling stakeholders. Since web2 model maximizes profits at the expense of developers, contributors and consumers, resulting in trust damage, the decentralized economy of Web3 provides a powerful alternative to the centralized control and exclusive economy of web2. Although decentralization is crucial to the development of the Internet, the complex products and services of web2 have dominated the generation of decentralized protocols of web1 (e.g., HTTP, SMTP, FTP, etc.).
        However, the distortion of control and ownership caused by the advantages of a centralized system is not inevitable, nor is it necessarily permanent. Today's web2 systems that penetrate the Internet all take advantage of the efficiency of the centralized system. However, the decentralized open protocol of web1 is limited by technology when it was created, and it can never take advantage of the fully functional decentralized economy. Programmable blockchain can build more sophisticated and complex decentralized systems without trusted centralized intermediaries, and now digital assets can use incentives to promote a truly decentralized economy around such systems. The securities law of the United States currently stipulates how and whether a system can use its own digital assets in the United States.
        Such laws are mainly aimed at protecting investors who invest in Securities and ensuring the efficiency of the US capital market. One of the main tools they use to achieve this goal is to apply the disclosure obligation to securities issuers and certain other parties in securities transactions. VI this aims to create a "fair competition environment" for securities trading by limiting the ability of market participants with more information to use those with less information. This is the principle of information asymmetry, and eliminating this asymmetry is & mdash& mdash; For example, when a company provides securities to the public (for example, in an initial public offering), it is required to make relevant public disclosure of its business, financial status and operating results & mdash& mdash; Reasons for.
        In 1946, the U.S. Supreme Court in SEC v. wjhoweyco The case establishes the basis for applying the Securities Law (and its disclosure requirements) to transactions involving "investment contracts", which is the most commonly used note type compared with digital assets by the sec. As the Supreme Court said in Howey case, applying the securities law to investment contract transactions "& hellip; & hellip; allows the issuance of & lsquo; many types of notes that belong to the concept of common securities in our commercial world, so as to achieve the legal purpose of comprehensive and fair disclosure". In order to determine whether the instrument is issued as an investment contract (i.e. securities), the Supreme Court established the Howey test, which stipulates that the securities law should apply to investment contracts in the following circumstances: (1) there is money investment (2) investment in common enterprises (3) there is reasonable expected profit (4) mainly based on the management efforts of others.
        Although there is no written standard for "legal decentralization", a practical standard can be drawn from the fourth point of Howey's test. So far, the final guide in this regard is the guide entitled "analysis framework for digital asset investment contracts" ("2019 framework") issued by SEC staff in April 2019, which proves the applicability of disclosure requirements to certain transactions of digital assets, so as to protect investors from & mdash& mdash; On the one hand, between the management and the enterprise, and on the other hand, between the investors and potential investors & mdash& mdash; Possible significant information asymmetry.
        In addition, the 2019 framework provides many factors about the types of management activities, which may meet the fourth point of Howey's test, because serious information asymmetry may occur. Similarly, the 2019 framework indicates that networks with "unrelated, decentralized network user communities" (i.e., decentralized) may deviate from the application of the securities law. Therefore, many people believe that if the system is "fully decentralized", the system may be legally decentralized, so there is no need to change the Securities Law
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