Why Decentralization is Cryptocurrency’s Biggest Downfall Pt. 1

Interested in access more free crypto analysis, resources and information like this? Check out these platforms:

Telegram — t.me/CoinEducation

Twitter — www.twitter.com/cryptomedicated

Before you click on the title and think that the author of this article is crazy, make a promise to yourself that you will read through the entire piece before making any value judgments about the title.

Before this article begins, a few things should be stated:

Decentralization is a wonderful principle. However, in the author’s humble opinion, decentralization is a concept that the community has lost sight of to a certain extent. When Satoshi Nakamoto crafted his famous whitepaper for Bitcoin, he made it known directly in the abstract that, “Digital signatures provide part of the solution [to double spending], but the main benefits are lost if a trusted third party is still required to prevent double-spending.”

Essentially, the entire purpose of Bitcoin was to create a form of currency that was completely immune to fraudulent activity or manipulation. The concept wasn’t new (Google: Bit Gold), but it also wasn’t something that anyone had successfully mastered.

By implementing distributed ledger technology (DLT), coupled with a mining process that was compulsory if transactions were to be validated on the network, Satoshi had effectively set in motion an effective ecosystem for transferring and storing money that was completely independent of any central authority.

What Did He Mean By ‘Trustless’?

The common understanding of this principle is that Satoshi didn’t want anyone the be able to steal, defraud or deceive the financial ecosystem in anyway. But the concept of ‘trustless’ goes much deeper than this. Millions of users swipe a credit card issued by Mastercard or Visa every single day around the world. If you ask any of these users whether they’re worried about Visa or Mastercard ‘taking’ their money or spending it, very few of them would say yes. If they were, they probably wouldn’t be using the cards in the first place.

However, the main issue with companies like Visa and Mastercard, which Satoshi saw, was that there was a central point of weakness with these companies. Unlike Bitcoin, Visa and Mastercard are centralized entities that manage everyone’s account balance. So, if they get hacked, everyone on the network would be compromised.

Conversely, the way that Bitcoin is set up removes a center point of weakness. In order to compromise the network, one would have to gain control over most of the network or acquire resources that equal at least 51% of the network’s capacity. Since there are no barriers for a user to join the network other than having the right expertise and equipment and nodes as well as miners are fairly ‘anonymous’ to an extent, it would be difficult, if not impossible to conspire to corrupt or collude with the bulk of the network. If a government agency wished to ‘shut down’ Bitcoin, they would have to not only shut down every node on planet earth, they would also have to stop anyone from joining in the future as well.

This is the concept of decentralization.

In a nutshell, it means that the network is dispersed. The more dispersed it is, the more decentralized it becomes. Obviously, given what was described above, the more decentralization inherent on a protocol, the more secure it would be.

So Why Do You Think Decentralization Is Cryptocurrency’s Biggest Downfall?

The title is a bit misleading, admittedly. The concept of decentralization described above is brilliant. Satoshi’s creation of Bitcoin from ‘scratch’ almost is nothing short of genius. He was able to erect a structure that essentially has thrived in his absence for over 6 years at this point. That, in itself, is no minor feat.

So What’s the Issue?

The issue with decentralization now is that it’s become a buzzword in the community. Everywhere you turn you see something else being advertised as ‘decentralized’. There’s a ‘decentralized’ exchange somewhere, ‘decentralized’ gambling, etc. There’s even an ICO that’s advertising itself as a ‘decentralized’ escort service (yes, really).

The issue is that decentralization compromises the viability of most coin companies.

Explanation

What made Bitcoin so unique was that Satoshi was a freelance developer accompanies by a slew of other developers in the community that were equally as passionate about the Bitcoin project. No one needed to fund their endeavors, they didn’t need to place a ‘bounty’ on anything, and they had no profit model. In fact, Satoshi deliberately made the code open-source and invited the community to assist him in developing the code for Bitcoin.

Unfortunately, that environment has long since faded in the cryptocurrency community. The money that has flooded the space in recent months/years has attracted a significant amount of attention around the world. That attention has also been accompanied by financial considerations. When there are millionaires seemingly being minted out of thin air in the cryptocurrency realm these days, no one is interested on working on a ‘free’ project — especially when coin teams are paying developers an insane amount of money.

So What Does This Have To Do With Decentralization?

As mentioned before, the definition of ‘decentralization’ has changed. Instead of alluding to no central point of weakness, people have now taken this term to mean that Bitcoin is meant to usurp any and all authorities/legal structures.

But, this more than likely wasn’t what Satoshi was trying to do and we have evidence of that below:

Source: https://bitcointalk.org/index.php?topic=770.msg9074#msg9074

Above, is a post from a forum member on bitcointalk (the forums where Satoshi frequented), asking if there was any possible to maneuver around the necessity of all nodes having to keep a full record of all transactions that had ever occurred on the blockchain in order to verify future ones because they otherwise wouldn’t know whether a given coin had been spent or not.

Here is Satoshi’s first response below:

As stated above, the core issue of creating such a system in Bitcoin (at the time), was that there were no ways to reliably ensure that no coins could be double-spent whilst retaining the ‘trustless’ structure of Bitcoin without retaining an entire ledger of all transactions.

The point of bringing up these posts is not to discuss the tech dilemmas that the community was running into, it was to provide context behind this statement that Satoshi had made later in the thread:

Specifically, this statement is of particular importance within that post response by Satoshi:

The statement in specific is, “As an example, say some unpopular military attack has to be ordered, but nobody wants to go down in history as the one who ordered it. If 10 leaders have private keys, one of them could sign the order and you wouldn’t know who did it.”

Now, this statement was given in the context of the ‘blinded key’ cryptographic technique that he was discussing, which would have essentially allowed Bitcoin transactions to be verified without the specific amount of value of the transaction being revealed.

What’s the Point?

The point here is that these posts not only reveal that Satoshi had no problem with privacy and in reducing how easy it would be to track someone through their public transactions. The analogy/example that he gave with the ‘unpopular military’ attack also reveals that he was looking at use cases where Bitcoin could be utilized by governments if necessary. Perhaps what’s even more interesting is that the specific example he gave was of governments/military leaders using bitcoin to obfuscate their actions when executing a potentially unethical mission.

Thus, we can gather from these posts and numerous other that the concept of decentralization was restricted to creating a ‘trustless’ ledger.

Crypto’s Obsession Today

Now that you know the true roots of the ‘decentralization’ principle, today’s usage should stand out as absurd by contrast.

You may have seen in many areas around the cryptocurrency community before, but there is an obsession with not being affiliated or even cooperating with any government entities or financial institutions when it comes to crypto.

Ripple, which provides the token $XRP, is probably the most classic example of this. Many of the community have lambasted Ripple, saying that the company merely offers a ‘banker coin’. This, folks have argued, makes it centralized and thus a ‘scam’, ‘fraud’, or antithetical to the true principles of cryptocurrency.

This, in a nutshell, is the issue with cryptocurrency. The obsession of crypto fanatics to be entirely independent of banks and governments reflects a deep-seeded fear that these entities could somehow gain ‘control’ over bitcoin one day.

The irony though is that decentralization is the principle that makes this ‘takeover’ impossible.

This, in itself, is the entire point of bitcoin and perhaps what most folks in the industry as well as outside of it are missing. If it is truly decentralized, then no entity should be able to “control” the protocol itself. Thus, ‘bankers’ or ‘governments’ attempting to ‘buy up’ bitcoin as some conspiracy theories have suggested, should be of no concern for crypto users. Similarly, for those outside of the cryptocurrency space entirely, they should know that the market is open and available to everyone to use at any point in time if they have the appropriate resources.

Any cryptocurrency that has the same distributed ledger technology as bitcoin that also implements its Proof of Work consensus algorithm with a network of sufficient size should be regarded in the same manner.

How Has Decentralization Hurt Cryptocurrencies

The ‘warped’ definition of decentralization has hurt the entire cryptocurrency space by making it seem as though it is the wild, wild west with no controls.

One must remember that Satoshi did not create bitcoin as a means of usurping governments or any other authority. Satoshi created bitcoin as a means of allowing people to access and transfer monetary value without the need of any banks, financial institutions, websites, start-ups, stores, or any other pre-established entity that can set the rules on when the bitcoin can and can’t be accessed.

That’s the concept of a permissionless blockchain.

Decentralization Has Also Led to a Lot of Dumb Ideas

Because of the prevalence of the incorrect understanding of decentralization, many projects these days are erecting unsustainable structures that are bound to fail. Dev teams/Companies have purposefully created whitepapers and other business structures where they keep themselves as far away from the currency as possible.

Let’s take the coin, STEEMIT, for example. To give a very rough overview, $STEEMIT is a coin that’s used on a platform that’ s somewhat similar to https://www.medium.com.

Users on the site can post blogs and articles in the same way that they can on Medium. However, instead of just giving each other ‘claps’ or a ‘thumbs up’, users can pay each other in this coin.

This is a brilliant idea, without a doubt. But where does it leave the $STEEMIT team?

When users are on the $STEEMIT network, they don’t have to pay any fees or pay to use the platform. With fiat currency, however, this is almost a given in every business model on planet earth.

However, cryptocurrency projects have been deliberate in avoiding any type of business model that would actually require the implementation of fees that go directly to the issuer of the coin.

In other words, the developers of most projects never get paid by the users of the crypto.

So How Do Cryptocurrency Projects Sustain Themselves?

Through ICOs and ‘pre-mining’.

This may seem like an oversimplified answer, but it is a factual one.

In recent months, it has become common practice for a team to launch with a substantial amount of the currency already pre-mined in order to ensure that they have some sort of percentage holdings of all the coins ever released (10%-50%, i.e., Ripple owns 60%).

The purpose of this is to avoid having to receive payments from their customers. Thus, they are forced to figure out some alternative means of raising money in order to sustain the project. So, they pursue this option.

Coin teams must also launch ICOs as well. Through this initial offering, they are able to raise a substantial amount of money through the general public by issuing digital tokens/cryptocurrencies that they created. But, as we’ve seen many times in the past few months, ICOs are a gamble at best these days.

Due to the structure that ICO companies have adopted, the cryptocurrency community is often forced to buy an ICO under the assumption that the money that they paid the company in order to receive the “ICO” tokens will be used to further develop the project rather than to line the ‘developer’s’ pockets.

Similarly, users must trust that the development teams of these coins do not ‘dump’ all of their coins onto unsuspecting investors once the price does finally increase as part of a mass exit strategy.

The worst part is that, even with regulation, it is virtually impossible to mitigate those two factors if you’re an investor.

However, there is a lot that you can do if you’re an influencer or considering launching your own coin.

Conclusion

This is just Part I of the series on why the perverted concept of ‘decentralization’ has actually hurt the crypto community rather than helping it.

Part II will discuss an alternative solution that I believe would really help move the crypto community forward in terms of being more sustainable, creating more fruitful projects, and ensuring the growth of the space for the long-term, rather than remaining a fringe investment vehicle for speculative traders.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Yes No