What Benefits Can Ethereum Offer Over Centralized Models?

Across every single layer of web development and technology, simplification is always the preferred route when evaluating two options. While that’s a broad generalization, it’s true  that when considering long term resources and general benefits of one option over another, the simpler product or service should win out most of the time.

As Bitcoin, blockchain tech and now Ethereum have been proliferating throughout cutting edge early adopter circles, we’re seeing an early rush to be first-movers on capitalizing on the technology. Just about any app you can think of now that flows through a centralized server system could in theory become a Dapp (Decentralized Application). However, technology creators and advocates should objectively question whether Ethereum’s technology is right for them and if a blockchain or Ethereum based Dapp model actually holds benefits to their core idea over building a centralized model.

What are the best examples of where decentralization and distribution trump traditional centralized models?

Ethereum Smart Contracts ALWAYS Execute As Written

Contracts of all types are written to be enforced and honored, however when the centralized model of having a contract written and managed by a lawyer or needing to be enforced by a judge or legal entity, the confidence that a contract will work as expected is not always there. There’s a sense of confidence when a business doesn’t need to worry that their operations will execute as expected within the confines of their DAO (Distributed Autonomous Organization) or smart contract network.

What’s more, the human and technological layers of enforcing contracts and operations aren’t needed as much anymore. It’s expensive to keep employees within roles that are oriented towards ensuring that processes are happening as they’re supposed to. This is true in both a private sector, public sector (government) and technological sense. Trustless operations truly are something that have never existed naturally in business before and as the Ethereum network continues to develop and strengthen, the capabilities for this will expand even more.

Crowdsales and DAO’s

Recently we’ve seen Digix, an Ethereum based DAO crowdfund over $5 million for their gold-backed currency Dapp. Not only was Digix able to raise much needed capital to operate and grow their business in a very short time, but they were able to do it purely through Ethereum’s network by issuing tokens. The logistics of raising capital of any kind or being an investor in a startups can be daunting and there are many barriers to even getting started. With a DAO crowdsale, a Dapp can easily raise the funds they need and also set up a board to vote on proposals based on tokens distributed without the need of lawyers, banks and accredited investors.

A DAO could be anything. Not just nuanced models such as Digix, Slock.it or EtherEx, but even very traditional minded businesses could be established and run as DAO’s. A DAO could conceivably come together and purchase or run a neighborhood coffee shop, or a farmer’s market or child-care service. The realization of these models is, of course, largely dependent on the acceptance of DAO type businesses by local, national and international entities, however we’re already seeing a move towards acceptance of Bitcoin in that regard in many parts of the world. Also, with the recent highlight of corruption in international companies operating shell businesses overseas to hide money, the concept of a DAO shouldn’t be seen as a far off alternative to these types of shell companies. They’d probably be an improvement, actually because It is also dependent on people discovering the optimal business models to operate their DAO’s on so that they can be set up and thrive in an autonomous manner through the Ethereum protocol. This is where the rubber meets the road moving from a theoretical to a real-world scenario.

Automation and Low-to-No Cost

Conceptually, an Ethereum based DAO could conceivably be designed to operate at zero cost because it can essentially execute an entire array of business functions automatically. With Ethereum there would always be at least some cost associated with operating a DAO because of the gas costs associated with executing a smart contract, however those costs would be minimal compared to the overhead of offices, employees and infrastructure associated with running a centralized version of that business. We’ve seen EtherEx strive to set up a decentralized and trustless cryptocurrency exchange using a similar model where there would be an EtherEx foundation which would vote on proposals to the EtherEx exchange and would issue tokens through an ETX token to raise money to support the gas-cost imbalance associated with a non-for-profit exchange.

One of the most exciting aspects of businesses being built on Ethereum is that only a small part of their capabilities are understood right now. As the technology and ecosystem around it continues to grow, evolve and become more robust, new ideas will emerge for decentralized models of business that could make the way that we currently do things today seem completely antiquated.

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