The Ridiculously Centralized World of Crypto

  • Cyril Gilson
    🤷 Opinions

    Cryptocurrencies decentralized nature is becoming more and more theoretical, whereas, in practice, it is an incredibly centralized space dominated by a few men

The Ridiculously Centralized World of Crypto
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Brandon Chez is a thirty-something old programmer allegedly living in New York. His name is not immediately recognizable, yet the domain name that Brandon owns and the website he maintains and controls is the gravitational center of the universe of cryptocurrencies.

It is CoinMarketCap, a website launched in 2013 that has become the source of information for millions of users in possession of billions of dollars. 300 mln of its monthly visitors make their decisions based on the data from CoinMarketCap. And their decisions affect the market big way.

In January, the site decided to expel South Korean exchanges from its listings, without a warning or any sort of orchestration. As a result, the whole crypto market capitalization fell some 20 percent, and the panic spread, leading to a big sell-off by uninformed traders.

Centralized information manipulation

In fact, any moves by CoinMarketCap play a big role in how the markets behave. The ranking system of CoinMarketCap has often been called into question, as its effect can greatly affect things too. The calculation of circulating supply is vital information, yet the way in which it is calculated is shrouded in mystery, and often could be erroneous. Any change in the value of the circulating supply of any project has a direct effect on the capitalization of the project and on the price of the project's coin. Direct, immediate effect.

The speculative nature of the cryptocurrency market and the high competition between coins for investors mean that knowledge and information is king. Information centers like CoinMarketCap has such a strong hold on certain sectors and coins that could be considered virtually indispensable. And yet, they are also incredibly centralized!

But what about the three pillars of Blockchain and cryptocurrencies which are supposed to be transparency, anonymity and decentralization? These are the factors that have made this new technology so enticing in the first place, attracting millions of individuals making their headway in a digitized world largely controlled by overbearing big corporations.

The decentralized nature of cryptocurrencies was intended to give power back to the common man. No longer does your money have to be controlled by an intermediary or a centralized structure like a bank; Blockchain was supposed to be an ultimate middleman to end all middlemen.

The Blockchain and crypto space is getting bigger by the hour and it’s a network of communities consisting of independent individuals. The communities do actually strive to be as decentralized and transparent as possible and work with what they have - from settling in at various crypto subreddits like r/cryptocurrency and introducing public moderation logs for transparency to building their own platforms like U°Community.

They now feel a part of this important decentralized movement as they take power away from the centralized banking system. But so far they have simply traded a Wall Street bank for an Internet bank as some of the biggest and most popular exchanges are in reality centralized and thus have full control over the users' funds.

A person entering the cryptocurrency space looking to buy their first bit of Bitcoin would more than likely go to a popular exchange, such as Coinbase in the US, deposit money to the exchange and trade that money for their digital currency.

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Authoritarian heroes

More advanced users who want to trade in altcoins could go to another major exchange, Binance. What started as an unknown Chinese exchange in late July 2017, is now competing for the number one spot in the cryptocurrency trading volume.

CEO of Binance Changpeng Zhao has the flair of a rock star with a slight touch of a Robin Hood. Zhao, better known as CZ, has famous in the crypto community when he saved thousands of Binance’s users from the travails of the Viacoin pump and dump affair.

In March this year, a major phishing attack struck Binance as some naive or greedy users recklessly used for trading ready-made bots that were laced with malicious phishing codes. Anyone was able to download these bots from GitHub, input their private keys, and begin bot trading with an eye to make a profit.

The malicious code gave hackers access to people’s assets, but more importantly, it allowed them to control the bots in order to pump and dump a coin. The bots bought as much as they could of a low liquidity and obscure coin named Viacoin. The attackers accessed the phished accounts on Binance and dumped all the crypto on balance of the accounts into Viacoin via market buys.

The price of Viacoin soared multiple hundreds of percents in minutes. Then the attackers sold the pumped Viacoin for Bitcoin and attempted to withdraw their funds in Bitcoin.

Then stepped in CZ. Accounts were frozen permanently, trades were reversed, funds were returned and the attackers’ funds were donated to charities. All's well that ends well? CZ was lauded as a hero, he repelled the attack, saved the users, punished the attackers, and as if it weren't enough donated the funds to a charity.

Judge, jury and executioner

But, just because it sounds like a happy ending does not mean that it should not be scrutinized. Essentially, CZ was at once judge, jury and executioner. He used total control to dish out his justice… No democracy, no decentralization, just one man at the pinnacle of control.

Let’s be frank. Major cryptocurrency exchanges are centralized and operate like digital banks anyway. Their centralization brings about another aspect, less pronounced but no less scary because of that.

Coinbase collects sensitive personal information on its clients, it has the ability to freeze accounts, it charges fees for its services, it can be hacked and it can even collapse with all of its users’ money in it. These are exactly the same problems that normal banks have, aren’t they?

It gets even worse with decentralized exchanges which operate with a thin veil of decentralization. A company called Bancor, which claimed to be a decentralized exchange, was recently hacked and had their users’ funds frozen. Straight away, there is something wrong here as a decentralized exchange should never have this power… and yet, they did that while still continuing to call themselves decentralized.

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Decision makers

To call the cryptocurrency space entirely decentralized because of the Blockchain decentralized nature is a strawman fallacy. There are multiple examples of how a few people rule the entire space.  Why is that happening? Partly because in this nascent space, there are still a few pioneers, few names that control certain spaces by default - for many, Binance is a synonym for “crypto exchange,” and CoinMarketCap is another word for “crypto market data.”

These pioneering companies sit at the top of their game without much competition and little precedent or repercussion for actions - which is a prime environment for centralized control.

Anyhow, the modest two men, Changpeng Zhao and Brandon Chez, have already shown to have made huge moves in an ecosystem that prides itself on being decentralized and thus, technically, immune to individual manipulation and control.

The fact of the matter is that in theory, decentralization exists, and can operate perfectly well in an ecosystem that prides itself on it. But in practice, that is not the case. People are inherently controlling, and enjoy the power and pride that comes from it.

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Blockchain Adoption Uncovered by Forbes as Billion Dollar Companies Buy In to Drive Technology

  • Darryn Pollock
    🤷 Opinions

    Blockchain adoption by billion dollar companies is probably a lot further along than expected as Forbes has revealed

Blockchain Adoption Uncovered by Forbes as Billion Dollar Companies Buy In to Drive Technology
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Forbes has recently released a list of 50 companies utilizing blockchain technology that are valued at over a billion dollars, these companies include the likes of Amazon, Microsoft, IBM, as well as less technical ones such as BP and Walmart.

What is surprising about the list is just how broad the scope of interest is when it comes to blockchain by these massive global companies. The adoption of blockchain, over the last 10 years, has been relatively slow, up until now.

But, in 2019, it seems that the future of technology has been laid out and to get a competitive edge these companies realise that there is a lot that can be done with blockchain and that they need to get their foot in the door.

Heavy hitters

While the Forbes list paints a grand picture of blockchain adoption, it also shows just how far along in the process some of these companies are. For companies to have made it onto the list, they have to have been using blockchain in some sort of effective and tangible way.

There are some, like insurance giant MetLife, which already has a working blockchain, and product, that has been going since 2014. Back then, the adoption of blockchain by major companies was not even heard of – it was more about the starting boom of Bitcoin.

But blockchain is the new leader in the space, taking over the batton from cryptocurrencies which certainly helped raise the profile of the entire ecosystem. If it was not for the cryptocurrency boom, a lot of these major companies would never even have stumbled across the underlying technology.

A drive for blockchain

Now, with the cryptocurrency market right back down again, and a lot of the speculation having been cleared out, there has been a whole year of rather focusing in on blockchain building and its application, instead of making money off speculative tokens.

That change in mindset has really helped major corporations take on the technology and begin experimenting with its efficiency and disruptive powers. There is almost an arms race going on as the advantages the technology can give across a huge spectrum of enterprises, which are massive and very coveted.

A need for enterprise investment

There still remains a debate as to whether blockchain, and crypto, with its decentralised nature, is in need of these major corporations coming in to monopolise the space which was born out of defiance of banks.

However, it would be foolish to think that blockchain can reach its full potential without a drive from big companies with big budgets. Smaller startups and companies are able to bring innovation and excitement to the space, but the mass adoption will only come when the heavy hitters are involved.

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