Looking at the current downfalls of big companies and tech, can we assume that decentralization is the future?

Yes but decentralized does not inherently mean more private. Look at Bitcoin, everybody's balance and every transaction they've ever made is public. There are some enhancements that make it more private, but it's very not private as a baseline. Or look at Lemmy or Mastadon, your instance admin can read all your DMs even though technologically there's little reason this needs to be the case.

Decentralized tech is the future for a simple reason: it's cheaper and more efficient. Web 2.0 and "platforms" inherently required centralization, there was no real peer-to-peer way to do social media at the time, the tech really wasn't ready. What federated stuff did exist was either archaic, hard to use, etc. Things like authentication and establishing network-wide policies were really hard to do, still are, but decentralized tech has some leaps and bounds in this area thanks to DLT (distributed ledger technology). Governments are investing big in open source software and some policy advocates are coming around to the idea that your data needs to be portable and exportable between platforms. We now have more than an entire generation of people who have seen the downsides of centralized platforms like Facebook.

A single company to run a service like Facebook simply no longer needs to exist, and those companies have every incentive to engage in "rent-seeking behaviour" ie enshittification. As a user or a company, you can choose between a decentralized alternative (no rent-seeking) or to pay some middleman ever-increasing costs to do the same thing. Why would you pick the middleman? Uber doesn't need to exist, a platform for coordinating rides and customers can easily be run decentralized with smart contracts. Smart contract platform A has to compete with Smart contract platform B for the ridesharing market, that will lead to better prices and administration for everyone while eliminating much of the incentive for rent-seeking behaviour since it's much harder to establish a monopoly. Plus, all somebody needs to do to compete with the "next uber" is write a smart contract. They don't need to get a massive data center with PoP all over the globe. They don't need to solve how to store massive central databases of users, they just plug into some other external authentication system. Drivers could switch between smart contract platforms at will, just like they now switch between Uber or Lyft depending on the fares that hour.

The market will choose the most efficient option. The most efficient option is not one or two massive companies with a duopoly engaging in rent-seeking because they can because they are the middleman.

Every time these sites die (Uber still was living off VC money last I checked) and users migrate, it's another opportunity for a decentralized alternative to replace them. As long as federated and decentralized alternatives don't absolutely fumble this, it seems inevitable that they will replace current centralized web2 infrastructure.

There is a downfall of big tech? Aside from Musk putting Twitter into the dumpster I haven't noticed anything like that.

You need capitalism to collapse completely for this. The end state of capitalism is consolidation and aggregation under the power and control of a few royals (aka billionaires).

I wouldn't call going from mad profits to okay profits a sign of downfall. Having decentralized technology doesn't mean decentralization will actually happen. For instance look at E-mail. It is technically a decentralized service, but most people still uses services provided by big tech vs operating their own servers. Such a system does give you more choices, but don't expect this future will be without big tech.

For the most part, it should be. Will it? Time will tell. A lot of people are actively hostile to the idea of federation, even on lemmy. It's very "complicated" for a lot of non-techy people to grapple with, but unfortunately as more and more centralized platforms implode its just going to have to become a new normal out of necessity regardless.

You might consider that social media is an aberration. We have decades of forums, newsgroups, and such--those still exist. I see federation/decentralization as a middle space between the two models.