Identifying the differences between 'Distributed & Decentralized' systems for the Metaverse, Web3

Variability of Decentralization in Distributed Ledger Technologies (DLTs)

Distributed & decentralized systems are not interchangeable classifications. While decentralized systems (i.e. blockchains) are a form of distributed system, not all distributed systems need to be decentralized.

Decentralization refers directly to decision-making power, not how dispersed the network of the system is. So, decentralization can differ quite significantly when considered distributed ledger technologies (DLTs). In addition to blockchains, here are three other examples of a DLT:

• Hashgraph

• Directed Acyclic Graph (DAC)

• Holochain

Example of a Distributed System

DLTs are a type of cryptographically secured record of consensus that has a consensus trail validated by a series of network nodes. Those nodes work together to validate that the record of consensus is consistent with the status of the network. A key point here though is that all nodes on a DLT network do not necessarily need to be equal.

Nodes can have designated rights on the network that differ in the amount of permissions they have. In other words, the amount of decentralization on a DLT network can vary substantially depending on how permissions are given to nodes on the network.

In a centralized distributed system, there may be a small series of nodes that have all the information about the network. This gives those nodes a complete picture of the record of consensus and gives them the highest amount of decision making power over the network. The remaining majority of nodes may only be given access to a refined dataset, giving them less information overall and lower decision making power.

Blockchain Networks

Blockchains differ from other forms of DLT networks due to one major distinction: every node on a blockchain network has access to all of the information from the entire ledger. Blockchains are made up of immutable data pods called blocks. When a block is validated and finalized, once it is added to the longest chain on a network, that block can no longer be altered. This creates a form of trustless verification as all nodes can always ensure they are running the optimal network without consulting a centralized authority.

Example of Blockchain Functionality

At a basic level when compared to other DLTs, blockchain networks feature both a highly distributed network of nodes and a decentralized decision making structure. This is a significant improvement over a centralized distributed network, but there are still shortcomings to full decentralization.

Shortcomings to Blockchain Decentralization

The easiest way in which a blockchain network can showcase high decentralization without actually having decentralized decision making power is through a lack of adequate tokenomics and/or governance structures. If there is a poor wealth distribution of a network’s native token, then there is almost always a high degree of centralization in governance.

For example, say a blockchain network has a native token COIN with 100 tokens in circulation. Governance on the network is determined through a Proof-of-Stake method where users can stake their tokens to participate in decision making. The ratio of tokens-to-votes is 1:1.

Now consider that one individual wallet holds 90 of the tokens and nine individual wallets hold one token each. That one wallet with 90 tokens entirely controls the voting power — and hence the decision making power — of the entire network despite nine other individuals being able to vote.

This creates a dilemma for blockchain protocols. Voting cannot be per wallet necessarily as a single organization could theoretically control hundreds of wallets. This is what has incentivized projects to adopt a 1 Token:1 Vote governance model. This does not work either, however, if the original distribution of tokens results in a high degree of wealth concentration.

Token Allocations for Web3 Projects — Messari

This is most commonly seen in projects that initiate funding rounds to raise capital during early days of development. The most decentralized protocols within web3 will include:

• A highly distributed initial token offering that leads to fair wealth distribution

• Open source development and/or immutable code (code that cannot be changed)

• Tokenomics that reward creators, developers, & users of the network alike

The High Degree of Centralized Control in Web2

Web2 can be defined by its significant concentration of control among a handful of major players. Since 2008, one of the most valuable commodities on Earth is personal data due to the models established by web2. The European Union estimates that each individual user is worth roughly $59, equating to ~$224 billion market with 3.8 billion users.

Yet, the most valuable companies in human history all exist today — and also happen to control the largest swathes of online data. For example, here is a list of major tech/data companies by market capitalization:

• Tencent — $3 trillion

• Apple — $2.2 trillion

• Google — $1.5 trillion

• Amazon — $1 trillion

• Facebook (Meta) — $424 billion

To put this in perspective, the entire global oil & gas market is estimated to be ~$5 trillion in 2022. Just those five companies above have a combined market capitalization of over $8 trillion.

How do these web2 leaders generate such massive valuations? This is most easily understood through the life of a traditional tech startup. Many begin with negative cash flow and survive on “runways” created by raising capital in funding rounds.

Eventually, those startups must begin showing positive revenue growth to continually attract larger sums of capital in later funding rounds. Venture capitalists simply won’t invest hundreds of millions into companies showing no revenue potential. This is ultimately when many platforms go from an attraction model to an extraction model.

Attracting massive amounts of users to a platform raises the attention of investors. Once a sustainable revenue model is achieved, the business model can then float to an extraction model where the data of the users themselves can be profited on via third party sales.

Certain organizations have made billions off of this very model, with the most successful controlling the biggest share of private data. This includes companies like:

• Facebook

• Google

• Microsoft

Google and Facebook dominate the online monetization market because they have the most robust tools and greatest amount of user data. The more data an entity has on someone, the greater likelihood that person can be marketed to successfully.

Because of this, Facebook and Google have amassed incredible market shares in their respective fields. Google alone controls nearly the entire mobile search engine market and the large majority of the desktop market. This does not even include the data collected from Google Maps, Gmail, and other services.

Google’s Search Engine Monopoly — internethealthreport.org

Achieving Decentralization in Web3

Previous megacorporations like Google and Facebook created their wealth by profiting off the data from their own users. If that model is turned on its head, it would be the users receiving at least a partial amount of the wealth being created. To emphasize this point again — the digital market is worth over $8 trillion, a value that current creators, developers, & users see only a fraction of. The highest degree of decentralization will ultimately come from a more fair wealth distribution model in the system.

This is precisely what LandVault’s vision is for web3. LandVault is the world’s largest builder in the open metaverse, accounting for ~10% of the builds in the entire blockchain ecosystem and a staggering 1.5 million square meters (sqm) of builds completed.

A truly decentralized metaverse economy will see:

• Creators getting compensated fairly for their contributions

• LAND owners being compensated for owning a piece of the virtual worlds brands & other entities will occupy

• Users retain their own digital rights on the internet and profit from using the system (i.e. play-to-earn)

LandVault is aiming to accelerate the growth of the metaverse economy, helping to onboard the world’s largest brands into the open metaverse space. By fueling adoption of the open metaverse, it exposes more individuals, brands, & organizations to blockchain technology. While some tokenomic & governance models require improvement, decentralization itself can be greatly expanded through adoption of metaverse protocols that put the creators, LAND owners, & users first.

To learn more about LandVault and the metaverse, join our Discord server