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False Sense of Decentralization May Distort Public View of Cryptocurrencies

Thu, 18/10/2018 - 12:17
False Sense of Decentralization May Distort Public View of Cryptocurrencies
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One of the main pillars of cryptocurrencies and their Blockchain technology is the decentralized nature of the tokens. Bitcoin has been heralded as a financial system that has no central leadership and thus is fully decentralized.

However, this effort to be decentralized is not a black and white issue, more of a sliding scale which allows many cryptocurrencies to claim decentralization while being predominantly centralized and controlled.

A recent report has pointed out that as little as 16 percent of all cryptocurrencies are truly decentralized in the manner in which Satoshi Nakamoto intended when he created Bitcoin. There are other questionable examples, such as XRP under Ripple Labs, but there is also a host of cryptocurrencies that are falsifying their decentralized nature.

The issue is, much like the exchanges that dominate the cryptocurrency space, there is this false belief in decentralization while behind the scenes, developers and other leaders are controlling the way in which these Blockchains operate. As an emerging ecosystem that is supported by the notion of decentralization, this is problematic as it is being built on a lie.

Surprising facts

Cryptocurrency research firm CryptoCompare released its annual Cryptoasset Taxonomy Report and revealed that 84 percent of cryptocurrencies across the market are not really decentralized. Some were either fully centralized or only semi-decentralized.

It is a sign of the times that there is the case in the cryptocurrency market as things have changed a lot since Bitcoin was created as a defiance against the centralized banking system in the wake of the 2008 financial crisis.

Now, the trend is largely driven by the rapid growth of new utility tokens running on private servers. Only nine percent of all utility tokens were found to be sufficiently decentralized. Cryptocurrencies that function primarily as a means of payment, such as Bitcoin, Litecoin, Stellar, and others, are among the most decentralized types of crypto assets.

But, there are also those that are well known to not be decentralized, such as XRP — and now also EOS which has shown that only 100 addresses contain 69 percent of the network’s native tokens.

The problems with not being decentralized

Bitcoin and the rest of the emerging cryptocurrency market are still incredibly new, yet its rally to $20,000 made it also very interesting, propelling it into the mainstream. This has led to a boom in new cryptocurrencies and Blockchains being built, but it has also led to a desire to control.

Ripple Labs is one such company that has not shied away from the centralized control of its tokens, wanting to be the master of the XRP and where it can and cannot be used. However, other companies have used the decentralization as a selling-point, while maintaining control over the asset.

Really, the world has moved on enough where the direct need for decentralized tokens is not as pressing and in many respects has been met by the 16 percent which are considered fully decentralized.

Additionally, those that are considered fully decentralized are either well-regarded or have been around long enough to be considered stable and safe.

But those coins that are entering the market with little more than a dream and a white paper, spouting off about decentralization when it is clearly not present, are causing a fictitious trap.

Honesty and integrity

The principle behind decentralization is obviously important and big in the cryptocurrency space, but it does not necessarily need to be the only option. There is no problem with companies bringing out centralized tokens if they believe they can run it correctly, but there really needs to be more honesty.

The cryptocurrency space is still rife with scams and unknowns, as well as hidden agendas and get-rich-quick-schemes, thus to lie about decentralization is again damaging the perception of this emerging space as much as major hacks on exchanges are.


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