by William J. Luther
The American Institute for Economic Research
There is a common view among bitcoin advocates, which also prevails to some extent among economists working in the Austrian tradition, that decentralization is always good and more-decentralized solutions are always better. In both forms, this view starts with a reasonable premise. Bitcoin revolutionized payments by enabling digital transactions to take place between strangers without a trusted third party serving as a centralized clearinghouse. Ludwig von Mises argued that economic calculation was impossible under central planning, while Friedrich Hayek explained that markets relied on decentralized knowledge of a particular time and place. It does not follow in either case, however, that decentralization is always good and more-decentralized solutions are always better. I call that view the decentralization fetish. We should reject the decentralization fetish and, instead, think carefully about the optimal degree of (de)centralization, which might vary across applications.