Incognito takes a pragmatic approach towards decentralization. There are many unknowns at play when implementing new decentralized features, and doing so takes considerable time and a great deal of trial and error. User demand for a feature must be validated. If no one wants it, it probably shouldn’t be built. So, in favor of speed, we often test the waters with a centralized or partly centralized version, collect valuable feedback, and gradually iterate toward full decentralization.
This approach has proven effective. Incognito is one of very few networks that generate strong utility rather than speculation. In its first few months, the network processed $95M+ worth of crypto confidentially – mostly in BTC, ETH, and USDT. Initially, many transactions were processed through centralized as well as decentralized bridges. User demand was validated fairly quickly, and as we did with the trustless Ethereum bridge, we are now implementing decentralized bridges across the board.
Different types of decentralization
Decentralization has become a catch-all term, despite meaning different things in different contexts. From our perspective, there are at least 3 different types of decentralization.
A network is technologically decentralized if:
- There is no central server; it must be peer-to-peer.
- There is no central database; its ledger must be distributed.
- The ledger is public; anyone can store it on their computer.
- The ledger is verifiable; anyone can verify it.
- Anyone can create a new account/address and send & receive a transaction without needing any approval.
For example, Bitcoin, Ethereum, and Incognito are technologically decentralized, while Hyperledger, Quorum, and Libra are not.
A network is operationally decentralized if:
- There is a large number of nodes; not 21 or even 150, ideally thousands of nodes or more.
- There is no special role like admin or masternode; the network is maintained by a group of nodes with equal privileges.
- It is permissionless; anyone can host a node.
- There is no fixed setup of nodes.
Most cryptonetworks today do not have operational decentralization. For example, 51% of mining power is controlled by 4 miners in Bitcoin and 3 miners in Ethereum. Even a Byzantine system with 21 nodes like EOS or Libra would have been more decentralized.
Incognito v1 met the first three conditions: it has ~2,000 nodes and continues to grow, all Incognito nodes have the same voting power, and anyone can host an Incognito node. It failed the fourth condition with its temporary fixed node setup.
Incognito v2 will remove the fixed node setup and will be operationally decentralized.
A network has a decentralized governance structure if:
- All decisions - whether it’s financial, technical, or marketing - are collectively made by the community.
- The network is self-funding and self-sustaining.
Perfectly decentralized governance does not yet exist today, but there is some really promising work being done, such as Decred with their Politeia proposal system.
Incognito v1 currently implements an inflation funding model for the Incognito DAO. The DAO’s funds are managed by a centralized governing board. Each board member has equal voting power on every proposal.
Governance is an extremely complex challenge. Our goal is to learn as much as we can in v1 and rapidly iterate to build out the governance process. Once we arrive at a “decentralized enough” model that functions well, we’ll build the decentralized version.
|Technological Decentralization||Operational Decentralization||Governmental
|Bitcoin||Yes (PoW)||No (4 miners control 51% of the entire network)||No (Decisions made by a small group of core developers)|
|Ethereum||Yes (PoW)||No (3 miners control 51% of the entire network)||Somewhat (Decisions made by the Ethereum Foundation and core devs)|
|EOS||No||No (21 nodes)||No (Decisions made by Block.one)|
|Monero||Yes (PoW)||No (2 mining pools control 60% of the entire network)||Somewhat (Token holders can vote, but only on a select few issues)|
|Zcash||Yes (PoW)||No (2 mining pools control 51% of the entire network)||Somewhat (2 entities make decisions – Electric Coin Co. & Zcash Foundation)|
|Decred||Yes (PoW/PoS hybrid)||Somewhat (2 pools control 61% of PoW protocol)||Somewhat (Politeia proposal system)|
|Incognito v1 (2019)||Yes (Fully-sharded PoS)||Somewhat (2,000+ nodes but with a fixed-node setup)||Somewhat (Self-funded DAO and community proposal system but manually approved by a board)|
|Incognito v2 (2021)||Yes (Fully-sharded PoS)||Yes (10,000+ nodes with no fixed nodes)||Yes (DAO with 100% community-driven voting|
Table 1. A framework for evaluating if a cryptonetwork is decentralized.
Incognito is decentralized by design, and pragmatic by principle. The decentralized future we all want is only achievable if utility is present. Incognito v1 tests the waters and lays the necessary groundwork to make surefooted steps towards a fully decentralized, universal privacy platform.
Decentralization may be hard, but we strongly believe it is worth doing. This means it’s critical to do it right. Onwards to Incognito v2.