According to a16z crypto, decentralization has emerged as a crucial concept for Web3 startups, offering an innovative approach to internet infrastructure. The venture capital fund, which has been investing in cryptocurrencies and Web3 startups since 2013, outlined the key benefits of decentralization in a recent article.
Decentralization promotes competition
One of the key benefits of decentralization is its ability to promote competition. By creating a trustworthy, neutral and composable internet infrastructure, decentralization lowers the barrier to entry for new businesses and services. This creates a more diverse marketplace in which different digital services can thrive.
Decentralization protects freedom
Another big benefit is that it protects individual freedoms. Centralized networks, often controlled by large corporations, have the power to censor and gate-keep, which can infringe on individual freedoms. Decentralized networks reduce the power concentrated in the hands of these corporate entities, increasing user freedom. An example is Twitter, whose content moderation practices came under scrutiny after Elon Musk bought the company.
Decentralization benefits all stakeholders
Decentralization also ensures a fairer distribution of rewards among all stakeholders. In the current model, the value created by networks like Twitter, Facebook, and Instagram is primarily vested in shareholders. In a decentralized system, on the other hand, value is distributed more fairly among all participants, including those who create and contribute to the ecosystem.
While some may argue that decentralization may be counterproductive for startups, it may actually allow the network to grow faster and stronger because it opens the playing field to other entrepreneurs. By providing the benefits of competition, freedom, and fair rewards, decentralization can help startups secure a larger share of a growing market.
This article is the first of a two-part series that delves into high-level concepts of decentralization. For a more in-depth investigation, see part two of the series and additional resources provided by a16z crypto.
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